In spite of the European debt crisis, Germany is doing relatively well as just 6.7% of the population are unemployed, which is the lowest level since 1990. Most of the population are feeling pretty confident about their future, and consumer spending increased by 1.5% last year, and is predicted to reach similar values this year.
According to an interesting article in MoneyWeek, one of the commodities Germans are spending money on is real estate.
Just five years ago an apartment in Berlin cost one tenth of the price of an apartment in London, and only 40% of Germans were owner occupiers with most choosing to rent. Back then MoneyWeek predicted anyone buying property in the country would do well, and even though nothing happened for a few years it looks as if they're being proved right.
In 2010 real estate prices in Germany rose by 2.5%, and by 5.5% in 2011, but apartment prices in some of the cities like Munich and Berlin rose by up to 10%, and one house in Munich which sold for €3 million 6 years ago and was recently sold for more than €6 million.
While some people may be spending money on houses because they feel more confident about the future, others see investing their money into property as being a safe haven. Prices are also rising due to the fact that construction hasn't kept pace with demand. New housing starts increased by 0.9% between 2005 and the end of last year, but during this period nearly 5% more households were looking to purchase real estate. It's also become easier to get access to credit to buy homes, but there are worries about rising inflation.
The president of the Bundesbank has already warned about these inflationary pressures and is worried about rising house prices. The trouble is it would be difficult to raise interest rates to cool real estate price rises in Germany, as it could cause the crisis in Spain, Portugal and Ireland to worsen, and real estate price falls could even accelerate in these countries.
During the last decade interest rates in Europe have been set at a low rate that has benefited Germany rather than the rest of the European Union, but it's looking as if this might no longer be the case.