In Germany, more and more planned housing projects are being cancelled—more than 20% in October, according to the IFO Institute. Does this mean that prices for existing new buildings in Germany will rise?

More and more developers in Germany are announcing the cancellation of planned housing projects. According to the IFO Institute, 22.2% of companies reported project cancellations in October, up from 21.4% in the previous month. Analysts cite high mortgage interest rates and rising construction costs as the main reasons for this sharp decline in the number of housing projects. You need to understand that the largest central banks are raising interest rates on loans to fight inflation, which, in turn, affects German house building. A sharp increase in mortgage interest rates leads to a decrease in demand for housing and an increase in supply on the market (including those supply where borrowers cannot cope with mortgage payments).

At the same time, in October, 48.7% of companies reported no orders, compared to 46.6% in September. A year ago, in October 2022, the share was 18.7%. According to analysts, the situation in the German construction sector will only get worse.

– More than half of all homebuilding companies are currently suffering from a lack of orders, and this number is growing every month. The situation puts several companies at risk, with one in ten already reporting financial difficulties, says Klaus Wohlrabe, head of surveys at ifo. – The outlook for the homebuilding industry remains grim as companies brace for difficult times.

Why have housing prices in Germany fallen to historic lows, and what are the authorities going to do about it?

According to Euronews, the PMI index (one of the main indicators of the economic state of the manufacturing sector) for the German construction industry HCOB fell to a more than three-year low in October, amounting to 38.3 versus 39.3 in September. This was facilitated by the fastest decline in housing construction in Germany since 1999.

German Chancellor Olaf Scholz's ambitious goal of building 400,000 new homes a year looks even riskier with new data.