Construction costs are currently skyrocketing

2022-05-18 15:22:54

Buddies work at Mercedes in Ludwigsfelde. Has probably not worked two weeks in a row for 3 months. Almost the entire time short-time work.

Yeah, yeah, you know that...
Put them on short-time work... and then announce a record year again!

The state helps! :D

2022-05-18 15:26:03

I am still skeptical about that. If people cannot afford the dilapidated house, they will hardly be able to buy a proper house either.

That’s why my edit. People fall out of the market and just remain renters. And even if they eventually buy something, it will no longer be at that price. The feasibility of financing runs counter to interest rates. And if you look at the median household net income, with a 3% interest rate you reach a point where the current prices become unaffordable for many because only interest is paid but not amortized.
Or one is simply not willing to pay a certain rate, even if one can still afford it. At the current interest rate, I would probably have to pay about €600 more per month for the same loan to maintain the same term. I would probably remain a renter and use the money elsewhere. Because interest payments are not an investment.

2022-05-18 15:30:11

That's why my edit. People are falling out of the market and just remain renters. And even if they eventually buy something, it won't be at that price anymore. The feasibility of financing is inversely related to interest rates. And if you look at the average household net income, with 3% interest you reach a level where current prices become unaffordable for many because only interest is being paid without any repayment.
Or one is simply not willing to pay a certain rate, even if one can still afford it. With the current interest rate, I would probably have to pay about €600 more per month for the same loan to keep the same term. I would probably remain a renter and use the money elsewhere. Because interest payments are not an investment.

Then there is still one question to answer. Currently, say, there are at least 20 bidders on a property. Now 3/4 are out because of high interest rates. There are still 5 left who can outbid each other. Ultimately, the question is whether now 5 are bidding who have the "small change" or 20 with 5 having more wealth. I can't answer that. We are currently setting up theoretical models. Both can happen.

2022-05-18 15:40:47

That's why here's my edit. People fall out of the market and just remain tenants. And even if they eventually buy something, it won't be at that price anymore. The feasibility of financing is inverse to the interest rates. And if you look at the median household net income, with 3% interest you reach a level where the current prices become unaffordable for many because only the interest is paid but not amortized.
Or people simply aren't willing to pay a certain rate, even if they can still afford it. With the current interest rate, I'd probably have to pay about €600 more per month for the same loan to keep the same term. There, I'd probably remain a tenant and use the money elsewhere. Because interest payments are not an investment.

What I also think is currently always far too little considered are the general living costs, which have dramatically increased in recent months. Petrol/diesel to get to work. (Acquisition) costs for a reasonable, reliable car. Groceries. Electricity. I don't even want to start with oil or gas... All things that you generally can't do without. As these basic things have become more expensive, automatically (much) less money remains for property financing. And if the properties then become unaffordable, it is only logical that demand (at least at the current, insane price level) is no longer there as much.

2022-05-18 16:02:42

I think that the shacks are also left untouched because you simply can't calculate anything properly. If bigger things are due and not just small stuff, then people tend to avoid it. Especially in old buildings, there are often many things that you might not have been aware of before.

2022-05-18 16:11:22

I just don't see any rental yield anymore. And this should actually determine what a house is worth.

A small example with numbers as they are currently approximately with us:

Apartment 90 sqm
Rent 12€ / sqm
Purchase price including additional costs approx. €350,000
Equity = €100,000
Interest = 3%
Repayment = 2%
Annual annuity = €12,500
Annual rental income = €12,960

Surplus after interest approx. €5,000 in the first year. That would be 5% return on equity in the first year. In the same example with 1% interest and 4% repayment, you would be at 10% return on equity, but would have a significantly higher tax burden, so the numbers haven’t really worsened that much in reality. For "real" investors, still a good investment. But for those who hope to make big money with real estate without equity, different times have now begun.

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Construction costs are currently skyrocketing

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