housing market bubble

The empirica housing bubble index provides a relative risk assessment of the regional housing markets. It is based on the analysis of increases in various indicators and not on the exceeding of absolute threshold values due to the specific local characteristics.

The severity of the housing market bubble risk continues to ease slightly, as rents are currently rising faster than house prices in many areas. As a result, the potential for price falls is diminishing, albeit at a slower pace than immediately following the change in interest rates. The spread of the bubble is currently stagnating, and the number of districts at risk remains high.

Rising rents and a slump in new construction are slowing down the risk of a bubble, but housing prices are still not completely out of the woods. All sub-indices are declining. The sub-index for price-income (-2 points) shows the sharpest decline. In contrast to the last quarter, however, there are only moderate changes across all indices. The overall index declines marginally (-1 point).

All sub-indices, with the exception of the construction loans sub-index (+1 point), are down. The completions sub-index (-30 points) has fallen particularly sharply. As a result, the overall index is down across Germany (-8 points).

The empirica housing bubble index shows the regional spread of a bubble risk. The multiplier sub-index (-1 point) has declined slightly. The sub-indices for construction loans, completions and price-income remain unchanged (+/-0 points).

When rents rise faster than purchase prices, it gives hope to many who dream of owning their own home. This is because buying owner-occupied property is then more worthwhile than renting. At the same time, this trend acts as a safety net for the property market: the more rents catch up with purchase prices, the lower the risk of a price collapse - the risk of a bubble decreases.

The empirica housing bubble index shows the regional spread of a bubble risk. The price-income (-1 pts.) and multiplier (-4 pts.) sub-indices are falling. By contrast, the construction loans sub-index (+2 pts.) is rising slightly, while the completions sub-index remains unchanged (+/- 0 pts.).

The current sharp rise in rents contrasts with the moderate increase in purchase prices. This is positive for the risk of a bubble, as the high valuation level of property is increasingly justified. At the same time, the slight fall in interest rates is leading to an increase in new lending for residential construction, which in turn harbours the potential for further price rises and thus increases the risk of a bubble.

The empirica housing bubble index indicates that the risk of a housing market bubble in Germany is decreasing. In recent quarters, there has been a change: there are fewer and fewer vulnerable districts. The danger is still there, but its extent is getting smaller. The number of endangered regions has been falling for three quarters in a row.

The empirica housing bubble index rises more strongly in the third quarter of 2021, especially in the completions sub-index, and somewhat less in the multiplier and price-income sub-indices. The overall index rises most strongly in the swarm cities, followed by the growth and shrinking regions.

empirica developed the housing bubble index seven years ago to show that there are no bubbles in the German real estate market. In recent years, however, the sub-indices “multiplier” and “price-income ratio” have continued to rise.

The new empirica housing bubble index shows an initial increase in the ratio of prices to income and a further increase in multipliers and debt.