Real Estate: According to the chart, younger people are more likely to be able to afford a house than their parents

Alexander Daum in his late 30s is one of those people who dreams of owning their own four walls. In early 2021, after the birth of his third child, the father of the family will certainly start all over again with a new house because the family of five has become cramped in their apartment in Frankfurt with the extension. The FOCUS-Online reader, whose real name is different, is searching with his wife for a reason for a new construction site. The square meter prices were still affordable at the time, he says.

Interest rates and construction costs have risen massively recently

However, there are always delays in the allocation of land. In March 2022, the actual positive news that they have been waiting for as a family finally comes: They can buy the property. The joy, however, is quickly followed by disappointment, as Daum’s calculations have become significantly more expensive in a few months.

Not only that, meanwhile the Baukindergelden has ceased and the federal government stopped the KfW55 grant for new buildings in January 2022. According to initial calculations, the construction project will also cost significantly more than planned because the war in Ukraine has increased the already high construction prices in Germany. Then there is the interest. While they were just over 1 percent in the initial planning, conditions have more than doubled from one to over 2 percent since the beginning of 2022.

No matter how big the family father’s desire for his family’s own house may be, Alexander Daum fears that financing is not feasible at present. He is annoyed that he did not buy a property before. Like many consumers, he regrets that it has never been so difficult to buy a home. But is that true at all?

Survey shows: Many people consider home ownership to be an unattainable dream

One thing is for sure: It is not only the Daum family who experience disillusionment when it comes to financing their own home. According to a new Interhyp survey, many Germans consider home ownership to be an unattainable dream these days. In early April, the private mortgage intermediary surveyed 1,000 buyers and property enthusiasts.

The result: The majority (65 percent) describe current property prices as a deterrent, 44 percent see them as separate from the true value and 51 percent of those interested consider a purchase in their region to be unaffordable or barely affordable.

In relation to their own purchase, many must therefore make concessions. A third delayed or delayed the purchase of real estate (29 percent). 7 percent have even completely given up on the dream of real estate. “Many of those we interviewed have the feeling that prices are ‘continuously rising immensely’,” says Jörg Utecht, CEO of Interhyp Group.

According to Interhyp data, the price increase in the real estate market continues after two years with an increase of more than 10 percent in each case currently undiminished and is even higher than in the same quarter the year before. However, potential buyers and leads for real estate can hardly put the price information, either per dwelling unit, house or per square meter, in a correct ratio to draw conclusions for their own financing.

Has it really become more expensive to buy a house on average?

And then the study also shows that the assessment of affordability is often based on guesswork and not necessarily on accurate calculations. “The majority of respondents assume that they can not afford real estate – this belief is hardly or not at all questioned,” concludes Utecht. According to the Interhyp survey, two-thirds of respondents do not know how high the financing costs would actually be for them.

The financing of a property varies from person to person and depends on many components, as the example with the Daum family shows. State aid can, for example, reduce the financial burden. Compared to previous years or even decades, when it comes to the issue of the affordability of a property, the relationship to the disposable income of a household in Germany is particularly crucial. This has also increased in recent years.

OECD Affordability Index shows: Housing as affordable as it was in the 1980s

Based on property prices and disposable income, the Organization for Economic Co-operation and Development (OECD) has developed the so-called house price-income ratio as an indicator of the affordability of housing. This is calculated on the basis of the average nominal housing prices divided by the average nominal disposable income per.

The lower the index value, the more property people can afford for their income. If the curve rises, nominal purchase prices have risen more sharply than income, with 2015 being chosen as the base year (index value = 100), as is the case with the current German consumer price index. This means that the housing price-to-income ratio in Germany increased by eight percent in 2021 alone compared to 2020. Thus, residential real estate was just as unaffordable as it had been in Germany in the 1980s.

Purchase of real estate: Deutsche Bank Research also takes interest rates into account

Above all, the figures from the OECD have one major drawback: They do not take into account that the vast majority of people have to borrow money from the bank to buy a house. However, the size of the building interest rates has a significant influence on the financing costs and thus the average affordability.

Based on the OECD values, Deutsche Bank Research has therefore developed its own affordability index, which takes into account interest costs as well as price and income development. “We calculate the index by assuming a standard loan agreement with average income and average house prices and deriving the interest costs from it,” explains Jochen Möbert, economist and real estate expert at Deutsche Bank Research.

Here, too, low values ​​mean low costs. A falling curve is therefore good for buyers, Möbert believes. By the end of 2021, the index will reach 33.4 points. For comparison: In July 2007, the index was still at 105.3 points. “The Affordability Index says that nominal interest costs today are only a third of what they were in 2005,” says Möbert. According to the index, people are now more likely to be able to afford a house than before.

Above all, equity and associated purchase costs make buying real estate more and more difficult

But the core lies in the detail. House prices, income and interest rates are based on averages, Möbert admits. “There are many discrepancies. The index is therefore a rough indication of the average interest burden on households.” In addition, the index is already rising again, also due to the recent rise in interest rates.

Compared to previous years, interest rates are still quite low. But Möbert assumes that five- to ten-year mortgage rates will be 2.45 percent by the end of 2022 and 2.95 percent with rising house prices by the end of 2023. As a result, affordability is likely to decline – and probably already is. The values ​​from Deutsche Bank Research only go to the end of 2021.

Another factor that is crucial for affordability is one that neither of the two indices reflects. Buyers, for example, must have sufficient equity for a construction loan, especially to be able to cope with the percentage additional cost of purchase. If you want to buy a home, you often need to have saved 20 to 30 percent up on the purchase price.

“Anyone who cannot fall back on family funds usually needs a high income and several years to build up savings before it is possible to buy a property,” says Jörg Utecht of Interhyp.

And it shows that income may have developed positively in recent years. The real wage index, on the other hand, shows that income has also shrunk as a result of rising consumer prices. Most recently, inflation rose by 7.3 percent in March.

Especially at this point, many Germans and the Daum family complain that it used to be easier to buy real estate is not just a guess, but a harsh reality.