BENGALURU, Feb 27 (Reuters) - Battered German home prices will slip by less this year than expected previously, cushioned by a lack of supply, according to property analysts polled by Reuters who said the ratio of home owners to renters is set to decline.
High interest rates and elevated inflation put an end to a near 10-year property boom in Europe's largest economy, where prices surged over 24% during the COVID pandemic as people scrambled to find bigger living spaces.
Average house prices have fallen around 11% from a peak in the second quarter of 2022, triggering the worst crisis in the German real estate sector in decades.
Germany's property market is in weaker shape than many other markets, including the U.S., where home prices jumped much more during the pandemic and have started rising again after a brief fall, despite a similar sharp rise in interest rates.
Several German property developers have had to file for insolvency, worsening the problem of an already tight supply of affordable homes. Analysts say that could arrest any fall in prices despite weak demand.
The median view from a Feb. 16-26 Reuters poll of 14 property experts forecast average home prices to slip 1.7% this year, less than 2.8% predicted just three months ago, and following an 8.7% drop last year.
The video player is currently playing an ad. You can skip the ad in 5 sec with a mouse or keyboardHouse prices were then expected to rise 3.0% in 2025, a significant upgrade from 1.8% estimated in November.
"Generally speaking, we expect a longer phase of bottoming out in which the market will try to find a new equilibrium," said Carsten Brzeski, global head of macro at ING.
"Besides affordability...the tense situation in the construction sector with still-high labour and material costs is likely to lead to a drying up of supply, which is likely to exert upward pressure on prices."
Germany has been falling short of its efforts to build 400,000 apartments a year. Construction spending is set to fall this year for the first time since the financial crisis, and sentiment in residential construction was at an all-time low, according to recent research from two prominent German institutes.
More than 85% of analysts polled, 12 out of 14, who replied to a separate question, said the demand-supply gap of affordable homes would widen over the coming 2-3 years, including seven analysts who said this gap would broaden significantly. Two said it would narrow modestly.
"Comparing with the amount of affordable homes leaving the market and an increase in supply, the demand-supply-gap is likely to widen," said Soeren Groebel, director of research at JLL.
"There are several programs in the new construction sector that try to subsidise affordable homes...and will lead to an increase in supply, however the increase will only be quite small."
The Bundesbank, the country's central bank, recently said German homes are still overvalued despite a fall in prices.
Although 11 out of 14 respondents said purchasing affordability for first-time buyers would improve over the coming year, the same proportion said the ratio of home ownership to renters would decrease over the coming year.
"With interest rates at higher levels and affordability hardly improving, it is hard to see how home ownership ratios could increase," said ING's Brzeski.
(For other stories from the Reuters quarterly housing market polls:)
Reporting by Indradip Ghosh; Polling by Mumal Rathore and Rahul Trivedi; Editing by Ross Finley and Bernadette Baum
