The market trend leads investors to suspect a possible interest rate shock in the near future. But how likely is this in fact?
The situation of the current housing prices
A renewed upswing in interest rates is assumed. Any other development would be a real surprise. However, the annual increase in interest rates is likely to decrease somewhat and remain in the mid single digits. The strong interest rate increases combined with strict regulations limit the purchase options of many families, which has a negative braking effect.
Do price bubbles encourage interest rate shock?
Price bubbles occur when there is a lot of speculation and purchase decisions are made only for the purpose of reselling soon. In recent years, however, we have not been able to observe such a thing so strongly. The very high price level in, for example, Switzerland or in many areas of southern Germany can be explained mainly by the incredibly low interest rates.
Who comes today on the housing market, however, must be aware that we are in Germany and Switzerland far above the ranking of housing standards and that a significant drop in prices is possible. "Due to the fact that prices in surrounding regions have also increased sharply recently, there is hardly a region that would not be affected by a sharp drop in prices, should this occur," explains Magna Real Estate AG board member Martin Gocks. Magna Real Estate AG has been active in the real estate sector for many years and specialized early on in the German and Austrian residential market. Its main business consists of low-risk, high-quality residential and office development projects.
The consequences of rising interest rates on the real estate market
First of all, a possible interest rate shock should be considered with caution. On the one hand, homebuyers must already be able to endure imputed interest rates of 4.5 or 5 percent due to strict legal regulations. On the other hand, more than four out of five mortgage borrowers have taken out a so-called fixed-rate mortgage. This means that the interest rate shock would reach most of them only with some time lag.
Nevertheless, it should be borne in mind that a rapid rise in interest rates would have a highly negative impact on property valuations. This would likely not be without consequences. There would possibly be high reductions in value and also problematic cases for owners who have only recently acquired property, but this would only indirectly affect the real estate market.