We expect that, during the coming years, house prices will continue to rise in all
metropolitan areas covered by this report. The uptrend will likely not come to an
end until,

1. supply is massively increased and vacancies rise. Such an outcome
seems to be several years away. Despite the expected pick-up in
construction activity, the supply deficit looks set to widen even more in

2. demand for housing declines, for example because labour migration to
Germany slows and/or macroeconomic imbalances in the euro area
decline palpably. However, the Bundesbank expects c. 300,000
immigrants in each of the years 2018 and 2019.


3. prices have reached a level at which people prefer to rent their home
rather than to buy it. In 2017, house and apartment prices once again
rose considerably more strongly than rents. However, rents for re-let
apartments were up 6.9% yoy, the highest figure in 23 years. The pickup
in rent growth does not suggest that people will begin to prefer
renting to buying at any time in the near future.

4. interest rates rise palpably. The ECB will probably terminate its bond
purchases by September 2018. This means that the main buyer, which
has played a key role in driving up bond prices since 2015, will drop out
of the market. If the bond purchases are not extended because
economic activity is robust, bond prices will probably decline
considerably and yields rise. This might be a substantial risk for the
German residential property market. While the ECB will obviously
address this risk by approaching its exit cautiously, some uncertainty
remains, not least because there is no historical precedent.

Conclusion: The first three conditions that might point to an end of the cycle are
not in place in any of the metropolitan areas we have analysed. In many cities,
they might materialise by the end of the decade at the earliest. The fourth
condition might be fulfilled to some extent, as mortgage rates look set to rise
towards 2% by end-2018 (see our baseline scenario outlined above). However,
the interest-rate increase is unlikely to do more than just dampen the general
price uptrend in most cities

Overall, our conclusion is similar to that drawn for 2017. Experts continue to expect strong apartment and house price growth and rent increases
in the metropolitan areas in 2018



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