Real estate market: price inflation is weakening

The price increase for houses and apartments is weaker than it has been in over a year. Why condominiums are becoming even cheaper in major cities – and where things are different.

Single-family home: Building interest rates have risen by around 0.3 to 0.5 percentage points since the start of the Iran War at the end of February 2026. Photo: Sven Hoppe/dpa

Berlin. Rising interest rates and high construction costs are increasingly slowing down the German real estate market. Houses and apartments only increased in price by an average of 0.6 percent from April to June compared to the same period last year, as the Federal Statistical Office announced on Thursday.

This means that price inflation has weakened for the fifth quarter in a row. It was lower than it has been since the summer of 2024. At the beginning of the year, prices had risen twice as much, at 1.2 percent.

In addition to the increased building interest rates, the reasons for the development are also high material costs, which dampen the interest of potential buyers. “One of the biggest difficulties currently is the sharp rise in construction prices,” said analyst Benedikt Horwedel from Landesbank Baden-Württemberg (LBBW) and, with a view to the Iran war, added: “The shortage of building materials due to the ongoing blockade of the Strait of Hormuz will probably fuel this development in the coming weeks.”

Prices for condominiums are falling in major cities

In addition, the European Central Bank (ECB) has already raised its key interest rate twice this year due to higher inflation - from 2.00 to currently 2.50 percent. This also makes real estate loans more expensive.

The financial service provider Dr. According to Klein, building interest rates have risen by around 0.3 to 0.5 percentage points since the start of the Iran War at the end of February 2026. “Building interest rates of more than four percent will probably be a reality for the time being,” said analyst Horwedel. "We currently don't think much of waiting for better times. There are hardly any signs of relaxation."

Economists surveyed by the Reuters news agency expect real estate prices to rise by two percent overall in 2026 and by 2.5 percent in 2027. “Regional differences are becoming increasingly clear,” predicted LBBW expert Horwedel.

The development in the last second quarter was very different depending on the region and property type. In the seven largest metropolises (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf) the prices for condominiums fell slightly by 0.4 percent year-on-year, while single- and two-family houses became more expensive by 0.7 percent.

In the major cities outside the seven metropolises mentioned, however, prices rose more broadly: condominiums rose by 2.0 percent and houses by 0.7 percent. In sparsely populated rural districts, prices fell for both houses (-0.4 percent) and apartments (-0.6 percent), the statisticians found.

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