German housing market put to the test again
The German housing market is demonstrating a surprising degree of resilience amid rising interest rates and geopolitical tensions, as outlined in the latest commentary from ING. Despite lingering affordability pressures and weakened lending dynamics, recent data indicates marginal price increases, with house prices rising by 1.4% year-on-year in Q1 2026 after a slight uptick of 0.3% quarter-on-quarter. Per the full note, this stability, seen by some as a silver lining, may mask deeper vulnerabilities that could emerge if economic conditions worsen or if interest rates continue to rise significantly.
What the desk is arguing
The desk views the ongoing resilience of the German housing market as potentially deceptive given underlying economic pressures. Recent statistics point to a 1.4% year-on-year rise in house prices in Q1 2026, showcasing a rebound of more than 5% from the 2024 trough. Per the full note, this positive trend is overshadowed by increasing pressures on affordability and rising lending costs, driven by higher capital market rates.
While the data reflects a robust facade, the potential for market deterioration remains high. The decline in wage growth against the backdrop of rising house prices may lead to increased affordability challenges, posing risks to sustainability.
Where it sits in our coverage
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How other firms see it
Firms like jpmorgan are aligned with the view that the German housing market could continue facing challenges, while bofa expresses concern over a potential downturn. The divergent perspectives highlight the uncertainty surrounding interest rate trajectories, which may significantly influence market stability. Watch for signals in related currency pairs like EUR/USD as they could react to changes in the ECB’s monetary stance.
What the calendar says
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How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01German house prices are up 1.4% year-on-year in Q1 2026, but the market faces affordability pressures.
- 02Concerns over rising interest rates and wage stagnation could threaten the housing market's stability.
- 03Data shows house prices remain 8.3% below their 2022 peak, highlighting ongoing volatility.
- 04Recent increases in lending rates reflect broader economic conditions influenced by geopolitical tensions.
Market implications
Traders should monitor the EUR/USD for signs of sensitivity to shifts in ECB policy and housing market dynamics. Attention should also be given to price levels around 1.075 as a pivotal point for strategic positioning.
Risks to this view
An unexpected escalation of geopolitical tensions or a sharper-than-anticipated rise in interest rates could significantly alter the housing market's trajectory and lead to a downturn.
Articles German housing market put to the test again 10:19 Germany Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Germany’s housing market has so far proven resilient in the face of rising interest rates and renewed geopolitical tensions. However, beneath the surface, affordability pressures and weakening lending dynamics suggest that this resilience is increasingly being put to the test Carsten Brzeski and Franziska Biehl German house prices are still 8.3% below the peak reached in 2022, but are up more than 5% from the trough in 2024 The German housing market has withstood the geopolitical storm, so far When the war in the Middle East escalated in March and capital market interest rates surged, concerns about yet another housing market downturn quickly resurfaced. However, just-released data on house price developments in the first quarter show that the German housing market has initially weathered the storm.
According to the German Statistical Office’s house price index, house prices rose by 0.3% quarter-on-quarter, from a downwardly revised -0.5% QoQ in 4Q 2025. On the year, house prices were up by 1.4% in Q1 2026. With this, house prices are still some 8.3% below the peak reached in 2022, but at the same time they are more than 5% up from the trough reached in 2024.
House prices compared to recent peak and trough levels Source: German Federal Statistical Office; ING Economic & Financial Analysis "> Source: German Federal Statistical Office; ING Economic & Financial Analysis Still, stable house prices do not mean that the housing market is immune to the adverse economic effects of the Middle East war. Instead, the shock has hit a market already under pressure from weak affordability. Capital market, and, consequently, lending rates have been rising since the start of the year, reflecting expectations of higher government debt.
At the same time, house prices have continued to increase, while wage growth has slowed. This combination was already weighing on mortgage lending before the geopolitical escalation. At the start of the year, new residential mortgage lending weakened and has since shown increased volatility.
March saw a strong rebound, likely driven by frontloading effects, but new lending declined sharply again in April. Rather than signalling a sustained recovery, recent developments suggest that mortgage demand remains highly sensitive to financing conditions. In other words, while prices suggest stability, lending developments tell a more fragile story.
Challenging outlook, with structural support in place Looking ahead, the near-term outlook for Germany’s housing market remains challenging. Higher financing costs, a cooling labour market and lingering pressure on real incomes are all set to dampen demand. Yet, structural factors continue to provide important support.
The gap between housing demand and supply remains pronounced, not least due to a growing construction backlog. Following a brief improvement, the imbalance between building permits and completions widened again last year, underlining the persistent scarcity of housing. At the same time, a gradual economic recovery expected in the second half of the year could provide a modest tailwind.
Ultimately, Germany’s housing market is being pulled in two directions. Structural undersupply and a stabilising economy are providing support, while deteriorating affordability and volatile financing conditions are acting as a drag. For now, the market continues to hold up.
But the balance is becoming increasingly fragile and the resilience seen so far is likely to be tested in the months ahead. Housing market Germany Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Carsten Brzeski Global Head of Macro Carsten Brzeski is the Global Head of Macro for ING Research. Previously, he worked at ABN Amro, the Dutch Ministry of Finance and the European Commission. He is a 2019 JFK Memorial Policy Fellow… Franziska Biehl Senior Economist, Germany Franziska is a Senior Economist in Frankfurt.
She mainly covers the German and Austrian economies. She joined ING in September 2020 after finishing her master’s degree in economics at… In this article The German housing market has withstood the geopolitical storm, so far Challenging outlook, with structural support in place
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