LONDON (Reuters) – German house prices will fall 3.5% next year as the cost of living crisis and rising borrowing costs hit consumers, but the chances of a crash outright are weak, according to a Reuters poll of property market experts.

Harmonized consumer price inflation in Europe’s biggest economy was 11.6% last month and the European Central Bank has raised interest rates as the bloc is likely heading into recession, putting intense pressure on household budgets.

Germany’s average house prices will fall 3.5% in 2023, the November 8-18 poll of 12 market watchers predicted, a sharp reversal from the 0.5% rise predicted in one poll of August. In 2024, they will fall by 0.5%, but will increase by 1.0% in 2025.

But when asked about the risks of the market collapsing over the coming year, 11 respondents said it was low and one said it was very low. Only one said it was high.

“The weakening demand for housing loans and the drop in consumer purchasing power indicate that the recovery in the residential real estate market has already begun – however, we expect a significant correction in prices rather than a genuine plummeting property prices,” said Carsten Brzeski at ING.

Yet the median answer when asked how much prices would fall from peak to trough was 10.0%, with the steepest decline being 17.5%.

“In the first quarter of 2022, we again saw very high increases compared to the previous year – compared to these values, 10% less is quite realistic,” said Jörg Utecht of mortgage broker Interhyp.

Still, that drop wouldn’t be enough to make housing affordable, the poll found, with analysts saying a 20% peak-to-trough drop would be needed after prices rose about 10% last year and are expected to increase by 3.0% this year.

On a scale of 1 to 10, where 1 is cheap and 10 expensive, respondents gave a median answer of 7 – putting home buying out of reach for many first-time buyers or those looking to upscale. .

(For more stories from Reuters Quarterly Housing Market Surveys:)

(Reporting by Jonathan Cable; Polling by Sujith Pai and Aditi Verma; Editing by Toby Chopra)

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