The German economy grew by 0.4% compared with the same quarter of the previous year, and already low construction interest rates are falling further. In the latest interest rate commentary, we show what this means for consumers.
- Upswing from construction industry & consumers
- Construction industry: full order books thanks to low construction interest rates
- The ECB, low interest rates and the missing effect
- European election: Influence on construction loan rates?
- Low construction loan rates reach all-time low
- Request advice
Construction sector and consumers eager to spend provide upswing
The past few months have been marked by countless negative economic reports. That made the news from the Federal Bureau of Statistics on 15 all the more surprising. May: The German economy grew by 0.4 percent compared with the same quarter a year ago. Growth is driven primarily by the construction sector and consumers who are keen to spend. However, those who are now speculating on a return of economic growth are likely to be disappointed: The positive development is probably just an outlier.
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Construction industry: full order books thanks to low construction interest rates
It's no surprise that the construction and real estate industries are booming, given the favorable financing terms available. 2018 was a good year for the construction industry, growing at its fastest pace in a quarter century. The record-breaking growth is expected to continue this year: Current construction rates are hitting new lows from week to week. The best interest rate for 10-year mortgage loans has already been settling below the 1 percent mark since February of this year.
For homebuilders, this is good news and bad news: First, they can take out a loan on extremely good terms and pay very little interest to the bank. On the other hand, the high demand for new buildings and existing properties is leading to higher purchase and construction prices. And anyone who has been looking for a craftsman lately knows that he is usually a long time coming. Full order books and a lack of skilled workers are making it increasingly difficult for the skilled trades to meet current demand.
However: the construction boom and the positive first quarter should not hide the fact that 2019 is likely to be a rather weak year overall for the export-dependent German economy. The renewed escalation of the trade conflict between the USA and China and possible US punitive tariffs on European vehicles are having a particularly negative impact in this country. In addition, the automotive industry, which is important for Germany, is facing numerous challenges and currently has to shape a fundamental change to other drive technologies and new mobility concepts.
The ECB, low interest rates and the missing effect
For years, the ECB has opened its money floodgates yawningly wide: bond purchases worth billions, the key interest rate at zero percent, the deposit rate even negative. Never before has Europe's monetary policy been so expansionary, but despite all the measures taken, the inflation rate is not moving significantly toward the 2 percent target set by the monetary guardians. The fact that the economy has been weakening again since the end of 2018 after a brief phase of recovery puts the ECB in a particularly difficult position: raising the key interest rate will not be possible in the foreseeable future. In the worst case, additional measures will even be needed again to get the weak economy moving again.
At the same time, persistently low interest rates are increasingly becoming a problem for banks and individuals. As decided at the last meeting, the ECB is therefore currently examining what measures it can take to relieve the burden on distressed banks, for example through allowances for penalty interest rates. For individual consumers, however, such measures are of little use: Saving money will not be possible in the euro zone for quite a long time to come. The only ray of hope for consumers is the enormously favorable interest rates for loans and construction.
Does the European Election Influence Construction Loan Interest Rates??
Still until Sunday, the 26. May, is elected in the 28 member states of the European Union. The British will also have to go to the ballot box. Until the very end, Prime Minister Theresa May had tried unsuccessfully to prevent the election from taking place. Now the British had to organize not only the election itself but also the election campaign in a rush. The likely consequence of the Brexit chaos: Britons punish both the ruling Tories and the opposition Labour party and give their vote to the newly formed Brexit party. If this actually happens, numerous bitter EU opponents will move into the EU Parliament, at least temporarily. Until the exit, they could block important decisions, for example on the budget or the election of the new EU Commission, and thus paralyze the EU.
At the same time, polls in other member states suggest that right-wing and Euroskeptic parties are gaining strength. However, the financial markets have already priced in a certain amount of support for the far-right parties. Provided there are no unexpectedly high gains by the populists, the impact on the financial markets and thus also on the currently already low construction loan rates is therefore manageable .
Low construction loan rates reach all-time low
In early May, the yield on the 10-year federal bond appeared to recover, even reaching slightly positive territory for a few days. On 14. May, however, it fell again to a low of -0.06 percent. The current interest rate on the best interest rate on 10-year mortgages is based on the yield on the federal bond and is therefore also falling: at a current 0.68 percent, construction interest rates are now back at their all-time low from October 2016. This means that the interest rates for a real estate loan have never been lower than they are now. And: this low has already lasted for months. Since February, the best interest rate has been consistently below the 1 percent mark. Who is interested in view of the low building loan interest for a real estate, should not be blinded however by the good conditions: Whether the purchase of a house or an apartment is worthwhile depends above all on the real estate price.