The German residential property market has concluded the extensive price correction of recent years. In 2025, detached houses, terraced houses, and existing flats showed slight price increases, a development that continued into the first half of 2026. Despite this stabilisation, there is no talk of a general upturn yet. The rental housing market remains tight, and acquiring residential property presents a significant hurdle for many households. These insights are based on the current IVD Residential Price Index 2026/27, for which the German Real Estate Association (IVD) annually determines purchase and rental prices in approximately 500 municipalities.
Professor Dr. Stephan Kippes, Head of the IVD Market Research Institute, states that the purchase market has found a floor, but has not yet entered a new upturn. High financing hurdles are making homeownership difficult, while in the rental market, the scarce supply is increasing pressure. After two years of falling prices, the direction in the purchase market has shifted, but market activity has not fully normalised. A majority of IVD members report fewer prospective buyers per flat offered compared to the previous quarter. Financing conditions, along with uncertainty due to the economy and politics, are considered significant inhibiting factors.
Challenges to Homeownership
The real price development puts the current picture into perspective. Adjusted for inflation, detached houses are approximately one-fifth below their peak at the end of 2021, and thus also below the 2019 level. A similar situation is evident for terraced houses and owner-occupied flats. However, this does not automatically lead to better affordability for buyers, as increased interest rates and, in some cases, higher property transfer taxes erode the price advantage. Professor Dr. Kippes points out that 'affordable does not automatically mean financiable'. What is crucial is whether households can raise the necessary equity and bear the monthly burden. This is currently one of the biggest hurdles to homeownership.
Four out of five IVD members experience banks' lending as more restrictive than in the previous year. A purchase often fails due to a lack of equity and unsustainable monthly instalments, which are caused by increased interest rates. The price level itself follows with a significant distance. High ancillary purchase costs exacerbate this problem, especially for younger households. According to calculations by the Pestel Institute, the homeownership rate remained at 43.5 percent at the end of 2025, the lowest level in two decades. Almost three-quarters of 25 to 45-year-olds live in rented accommodation, although according to a Forsa survey commissioned by the IVD, two-thirds of tenants desire their own property, with significantly more among younger people. Professor Dr. Kippes concludes that Germany does not have a lack of interest in homeownership, but rather a problem with access. This will also have long-term consequences for wealth accumulation and private pension provision if, in particular, younger households with earned income fail due to a lack of equity.
Comparison of Rental and Purchase Markets
The divergent development of the rental and purchase markets is also evident in marketing times. According to IVD members, existing rental flats are predominantly let within two months, which represents the fastest value since data collection began in the first quarter of 2024. Purchase properties, on the other hand, require an average of up to six months, and significantly longer if price expectations are too ambitious. Approximately six out of ten agents report longer marketing times than in the previous year. Professor Dr. Kippes explains that in the rental market, a narrow supply meets high demand, while in the purchase market, more choice encounters financing hurdles. Additionally, there is a growing gap between existing and new contract rents, which inhibits mobility, as tenants with favourable existing contracts would rarely give them up due to significantly higher new rents.
Demographic change could influence supply in the coming years, as the baby boomer generation increasingly sells or inherits detached and semi-detached houses ('Silver Tsunami'). These additional existing properties could often have a significant backlog of renovations. Professor Dr. Kippes qualifies that the 'Silver Tsunami' will not reach the housing market everywhere simultaneously and with the same intensity. The location of the properties and future demand will be decisive. This will not automatically solve housing problems in tight markets, and new problems could arise in structurally weak regions due to houses that are no longer marketable.
- —Energy efficiency is the third most important purchase criterion after price and location.
- —Fixtures and fittings and floor plans only follow after energy performance.
- —Buyers precisely calculate the investments for renovation measures after acquisition.
- —Medium and small towns are experiencing faster price increases than large cities.
The energy efficiency of a property continues to gain importance and is the third most important purchase criterion after price and location, even before fixtures and fittings and floor plans. Professor Dr. Kippes emphasises that energy efficiency has long been an independent price factor, as buyers very precisely calculate what investments will be incurred after acquisition and whether necessary renovation measures can be implemented with low barriers. The moderate price increase has so far been more pronounced outside the major centres. By mid-2026, house prices in medium and small towns rose significantly faster than in large cities, while new contract rents everywhere increased similarly strongly. The price differential persists: detached houses cost approximately 40 percent less in medium-sized towns and about 55 percent less in small towns than in large cities. The 'outlying areas' are catching up in terms of speed, not price, as Professor Dr. Kippes notes.
