The German housing market’s weakness is showing up everywhere except in prices
Per the full note , the German housing market is illustrating a peculiar scenario where rising mortgage rates and declining affordability coexist with stubbornly high property prices. Despite a 100 basis point increase in mortgage rates and a resultant 1.5% drop in mortgage loan volumes, house prices in Germany have shown unexpected resilience, with a quarterly increase of 0.3% and a year-on-year rise of 0.6% in Q2 2026. This dynamic underscores a housing market fundamentally constrained by supply shortages that mitigate price corrections, even amidst weakening demand and escalating operational costs for consumers.
What the desk is arguing
The desk posits that the German housing market's current trajectory, where prices remain elevated despite rising mortgage costs, signals an underlying structural imbalance. As detailed in the research, this anomaly can primarily be attributed to a persistent shortage of housing supply amid cyclical headwinds such as high interest rates and diminishing affordability.
Tellingly, the German Statistical Office reports that while house prices remain 8.2% below their pre-2022 peak, their recovery from a 2024 trough shows a concerning disconnect between the broader economic indicators and housing cost realities. Specifically, mortgage lending volumes fell by over 1.5% in early 2026, indicating that affordability pressures are significantly impacting buyer interest.
Where it sits in our coverage
Our current consensus target for the EUR/USD pair is set at 1.075, with a range from 1.04 to 1.12. Notably, jpmorgan projects a target of 1.10 for the same currency pair by March 2026, while bofa holds a more cautious stance with a 1.04 target.
This desk's assessment indicates a neutral alignment with jpmorgan's position, suggesting that the upward pressures in the housing sector could support the upper bounds of our forecast range. Given the ongoing economic uncertainty, we remain focused on how these evolving housing market dynamics might influence the overall EUR outlook.
How other firms see it
Several firms share a consensus view that the disconnect between supply and demand in the housing market will exert upward pressure on property prices, aligning with jpmorgan's forecasts. Conversely, bofa emphasizes a more pessimistic outlook regarding affordability that could stifle demand further.
Traders should monitor the EUR/USD pair in conjunction with developments in German monetary policy, especially as the ECB adjusts its response to inflation and housing market pressures, keeping in mind the potential impacts from upcoming economic indicators that may highlight shifts in buyer sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01German house prices rose 0.3% QoQ in Q2 2026 despite rising mortgage rates.
- 021.5% decrease in mortgage lending signals weakening demand in the housing market.
- 03Chronic supply shortages are maintaining elevated housing prices.
- 04The disconnect between prices and affordability complicates housing market forecasts.
Market implications
Traders should keep a close eye on the EUR/USD's movement around the 1.075 target as volatility in response to changing mortgage conditions may play a significant role. Upcoming data on housing market trends could act as a catalyst for potential realignments in pricing.
Risks to this view
A change in interest rate policy by the ECB towards a more aggressive tightening could amplify existing housing affordability challenges, thereby exerting downward pressure on prices and altering the current market narrative. Additionally, a sharp increase in housing supply could lead to a rapid recalibration of prices.
Articles The German housing market’s weakness is showing up everywhere except in prices Published 09:30 Germany Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Higher mortgage rates are back. Housing affordability is deteriorating. Demand for mortgage loans is weakening.
Yet, German house prices continue to edge higher Carsten Brzeski and Franziska Biehl Aerial view of residential buildings in the Ruhr region of Germany At first glance, these developments seem contradictory. In reality, rising prices in thinner markets can easily happen, but they also tell the story of a housing market caught between cyclical headwinds and structural shortages. While financing conditions are once again weighing on demand, the chronic lack of housing supply has prevented a more pronounced correction in prices.
Prices tell only half of the story Germany's economy has fared better than expected this year. Despite geopolitical tensions, political uncertainty and another jump in energy prices, sentiment indicators continue to point towards resilience . And the housing market once again is reflecting trends in the broader economy.
According to the German Statistical Office’s house price index, house prices rose by 0.3% quarter-on-quarter in the second quarter of 2026, from a downwardly revised 0.1% QoQ in the first quarter. On the year, house prices were up by 0.6% in the second quarter of 2026. While German house prices remain 8.2% below their 2022 peak, they have recovered by more than 5% from the trough reached in 2024.
At face value, these figures suggest that the housing market has shrugged off another rise in interest rates. However, it’s not that simple. In fact, recent mortgage lending data suggests that the 100bp surge in mortgage interest rates is leaving its mark on demand.
New business volume for mortgage lending was down by more than 1.5% in the first seven months of the year. Interest rate development & mortgage demand Source: LSEG Datastream; ING Economic & Financial Analysis "> Source: LSEG Datastream; ING Economic & Financial Analysis This once again underlines the sensitivity of housing demand to financing conditions. Affordability remains the key cyclical driver of the German housing market, and affordability has deteriorated lately.
Prospective buyers now face a challenging combination of higher property prices, higher financing costs and the lingering effects of weaker real purchasing power, driven by the adverse economic effects of the war in the Middle East. Even relatively small increases in mortgage rates can have a disproportionate effect on borrowing capacity, pushing potential buyers out of the market or forcing them to postpone purchase decisions. The outlook offers little immediate relief.
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