Construction costs are currently skyrocketing

I sold my condominium in Germany in mid-1997 and made a very, very good profit from it. A year later, I would have only incurred losses; the following 10 years, real estate was spot cheap, nobody wanted to build. Why not back then but everyone NOW? The interest rates were higher, overall it was much cheaper. One sets an example, everyone runs after ... in the end, as I see it, many live out in the sticks.

Definitely, the price formation in many markets is completely out of control, everywhere speculators are looking for the next Gamestop or Bitcoin – and more examples keep emerging where prices shoot straight up. Inflation is coming back strongly and with it, ultimately, interest rates again. Wages certainly not, and that does not make a good mix for dreams of an endless rally.

Your example shows it well – often it is precisely not the "slowly escaping air from the bubble" that the "analysts" (5%) like to write about. Rather, the declining, fitting slope to all the previously sky-rocketed prices. What goes up, must come down. Because there is a lot of psychology at play – in single-family houses almost exclusively (not being late). Condominiums as investment, for leveraged bulk purchasing of rental portfolios (often due to YouTube videos) are hardly sensible anymore at these prices and possible rents – presumably the returns of many will already be significantly impacted by the CO2 tax and further niceties of the next legislative period. And whether gains can be made on further price increases at purchase price factors of 50, which you already meet today in questionable locations, is likely to be a very hot speculation.

Why not back then but everyone NOW?

Maybe because the framework conditions were different?

Without checking, unemployment rate probably twice as high. Interest rates probably 4-5 times as much?

Maybe because the framework conditions were different?

Without checking, unemployment rate probably twice as high.
Interest rates probably 4-5 times as high?

But that can only explain part of the residential construction. Because there are no interest payments on deposits, many invest in "concrete gold." I think too little old building stock is renovated. Likewise, the population is getting older and it is usually only in old age that one owns property.

From my point of view, one must clearly differentiate between owner-occupied and investor-used residential property.

Where the owner-user construction boom comes from and why it no longer continues, in my view is essentially due to two factors:

1. A boom period in recent years over an unusually long period in connection with a persistent low interest rate environment. Higher incomes (without significant equity) and low interest rates ultimately lead to more home builders.

2. Increasing amounts of wealth are being inherited and gifted. This brings home builders into the market who would normally not be able to build.

The multi-family house construction boom ultimately has different reasons. In particular, it is wealthy investors who have discovered real estate as the only remaining profitable asset class (besides stocks) for themselves. In addition, the demand for housing has increased in recent years (more single households, immigration).

With rising interest rates, wealthy investors will reorient themselves again. And good credit ratings will also say goodbye as demanders of single-family homes (especially new builds) again – provided they do not have significant equity.

The gifted and heirs, on the other hand, will be the main demanders of single-family homes. Significant usable equity will in the future be a basic requirement for the purchase or especially the construction of a single-family home.

You forgot a third factor that was significantly decisive for us:

3. The insanely high rents in many regions.

If the rents for reasonable apartments/houses were cheaper, taking out such a large loan would not be a real alternative.

You forgot a third factor that was very significant for us:

3. The insanely high rents in many regions.

If the rents for reasonable apartments/houses were cheaper, taking out such a large loan would not be a real alternative.

This factor would make sense if you had countered high rents with a small loan. If high rents are replaced by a high loan, the region is simply expensive. Then the decision to own property is not a financial one but an emotional one.