Assessing house prices in Germany: evidence from a regional data set

Abstract

Purpose

With a view to the unconventional monetary policy measures implemented in the euro area in recent years, this study aims to investigate whether the recent house price increases in Germany are signals of an incipient overheating of the German housing market.

Design/methodology/approach

This paper presents a valuation measure for residential property based on a large and exhaustive regional panel data set for Germany. The fitted house prices from a panel regression at the district level, taking into account spatial spillovers, are taken as a measure of the fundamental equilibrium house prices, which can be aggregated for various regional subsets.

Findings

The estimation results suggest that apartment prices over the past years substantially exceeded the fundamental price suggested by the model, in particular in the big cities. Single-family houses appear to be markedly overvalued mainly in the cities. The low level of interest rates in recent years appears to have contributed to the emergence of misalignments.

Originality/value

Exploiting the variation across local housing markets, the estimation approach provides value-add for the estimation of house price valuation results in various regional subsets, as conventional time-series approaches to valuing property are subject to severe data limitations in the case of Germany.

Citation

Kajuth, F., Knetsch, T.A. and Pinkwart, N. (2016), "Assessing house prices in Germany: evidence from a regional data set", Journal of European Real Estate Research, Vol. 9 No. 3, pp. 286-307. https://doi.org/10.1108/JERER-03-2016-0017