By Zuzanna Szymanska and Jonathan Cable
BERLIN/LONDON (Reuters) - German home prices will rise faster this year than thought only three months ago, as a supply shortage outweighs a deepening cost of living crisis and the prospect of higher interest rates, a Reuters poll found.
However, the resulting squeeze on disposable incomes is expected to keep property price rises in the next two years in check.
House prices are expected to rise 7.0% this year, according to the median forecast of 13 analysts polled May 11-25, with the pace seen slowing to 3.0% in 2023 and 2.0% in 2024. In a March poll those respective forecasts were 6.3%, 4.5% and 2.8%.
"House prices will continue to rise, albeit at a slower pace, as higher interest rates, the surge in prices over the last years and lower disposable income are undermining affordability," said Carsten Brzeski at ING.
The European Central Bank is expected to raise its rates for the first time in over a decade in July and on Tuesday ECB President Christine Lagarde implied a lift of at least 50 basis points by end-September. [ECILT/EU]
Like much of the world, Germany has seen runaway prices with inflation hitting its highest in more than four decades in April, driven by soaring fuel and energy costs in the wake of Russia's invasion of Ukraine.
Out of 13 respondents who answered additional questions about affordability, all expected conditions to worsen both for first time home buyers and for the rental market.
Of those 13, ten saw significantly worsening affordability for first-time home buyers and four for renters.
"It's the worst of all worlds: Still-rising house prices, rapidly-increasing interest rates, building delays due to scarce skilled labour, reduced purchasing power owing to high inflation," said Timo Klein at S&P Global (NYSE:SPGI).
Klein said he also expected rents to go up driven by reduced building activity, landlords trying to keep ahead of inflation and additional demand from Ukrainian refugees.
Asked how high the ECB's deposit rate, currently -0.50%, would have to go to significantly cool housing market activity, the median response was 1.00%, a level not expected before 2024 according to another Reuters poll.
But one respondent, Marco Wagner, senior economist at Commerzbank (ETR:CBKG), said 0.00%, a level forecast for end-September.
"Basically, each and every rate hike will do and contribute to a slowdown of the price increases," he said.
(For other stories from the Reuters quarterly housing market polls:)