Rising Rental and Real-Estate Prices: How Real is the Threat of a Bubble?

Do current price increases in the housing market signal a real-estate bubble? For Andreas Dombret, German Bundesbank, price bubbles in the real-estate market are one of the biggest threats to financial stability. The consequences of such excesses could seriously affect financial intermediaries and permanently weaken the real economy. In Germany, however, Dombret does not see any swift increase in these threats to financial stability to date, thanks in particular to the robust debt sustainability of private households, the moderate growth in lending and conservative standards for granting credit. According to Reiner Braun, empirica AG, the residual risk of monetary bubbles will persist as long as the “core” problem of cheap money has not been resolved. Nico. B. Rottke and Christopher Yvo Oertel, EBS University for Economics and Law, Wiesbaden, cannot see any current signs of overheating in the entire German real-estate market. Price trends that could be defined as bubbles can only be seen in small, regional sub-segments of the market. Although it has increased since 2010, the relationship of purchasing prices to income remains at a historically low level. Based on past experience, Andreas Mense, University of Erlangen-Nuremburg, does not think that the price increases recently seen in some large German cities will continue indefinitely. However, there is a danger that the developments to date will continue in the future, although the factors causing them are mainly of a short-term nature. Jens Schumacher, Federal Ministry of Transport, Building and Urban Development, does not believe that there is currently any real-estate bubble in Germany. He bases his opinion on trends in real-estate prices over the last 30 years, purchasing and rental price relations, income and employment and the affordability of housing.