Germany´s housing market price rises have been accelerating for several months.  In a country where the housing market has historically been extraordinarily stable, this is a significant shift. The reasons?  Strong economic growth, 1.1 million refugees, high work-related immigration, weak construction supply and low interest rates. The German hedonic price index rose by 8% (7.6% inflation-adjusted) during the year to August 2016 (hedonic indices attempt to compare like-for-like exactly, so are the best measure of house price trends).  This is up from a 5.8% rise (5.6% inflation-adjusted) during the same period the previous year, based on Europace figures. Apartment prices rose 9.6% y-o-y (9.2% inflation-adjusted), compared to the 5.4% y-o-y (5.2% inflation-adjusted) growth during the same period last year. New home prices rose somewhat more than existing homes. The German housing market was one of the few that avoided a slump in the wake of the 2008-2009 global financial crisis. German house price changes:

• In 2009, the price index fell by 1.9% y-o-y (-2.7% inflation-adjusted).
• In 2010, prices bounced back, rising by 3.6% y-o-y (2.2% inflation-adjusted).
• In 2011, house prices rose by 4.7% y-o-y (2.7% inflation-adjusted).
• In 2012, house prices rose by 4.6% y-o-y (2.5% inflation-adjusted).
• In 2013, house prices rose by 3.2% y-o-y (1.8% inflation-adjusted).
• In 2014, house prices rose by 3.7% y-o-y (3.5% inflation-adjusted).
• In 2015, house prices rose by 5.6% y-o-y (5.3% inflation-adjusted).

Extremely low interest rates and bond yields have encouraged persistently growing demand, despite the fact that most German mortgage borrowers borrow on long-term interest rates, which are higher than "tracker" rates. The quantitative easing programme pursued by the European Central Bank, worth about US$65 billion per month, is fuelling fears of housing price bubbles in several eurozone countries – with Germany and Norway most at risk, according to a report by Moody’s Analytics, which also points to high risks in the U.K. (which does not use the euro). The QE programme lowers bank interest rates to zero, encouraging demand for homes. German homes could be overvalued by as much as 10%, warned the Bundesbank in late 2013. Recently, the migration crisis and strong economic growth have added to the pressure. Concern about house prices is mounting. The authorities have also considered capping the amount home-buyers can borrow.  In March 2016, the German government implemented the Mortgage Credit Directive (MCD), which requires banks to apply stringent rules to borrowers intending to acquire residential properties in Germany. Aside from the property´s value, this new legislation requires banks to examine borrowers´ creditworthiness, making it more difficult for borrowers to obtain mortgage loans. During the year to Q2 2016: In North-East Germany:

• In Berlin apartment prices rose by 7.7% to a median price of €3,036 (US$ 3,301) per square metre (sq. m.). The median price of one- and two-family houses rose by 4.6% y-o-y to €2,104 (US$ 2,287) per sq. m.
• Hanover had the strongest y-o-y apartment price hike in Q2 2016, rising by 10.02% to €2,172 (US$ 2,361) per sq. m. However, one- and two-family houses increased by only 1.33% to €1,719 (US$ 1,869) per sq. m.
• In Dresden, median apartment prices rose by 1.79% to €1,987 (US$ 2,160) per sq. m., while one- and two-family houses increased by 6.35% to €1,995 (US$ 2,169) per sq. m.
• In Hamburg, median apartment prices increased by only 1.41% to €3,480 (US$ 3,783) per sq. m. One- and two-family houses rose by 2.57% to €2,325 (US$ 2,528) per sq. m..

In West Germany:

• Dusseldorf had the highest apartment price increase in the region, rising by 7.62% to a median price of €2,261 (US$ 2,458) per sq. m. In contrast, the median price of one- and two-family houses fell by 1.57% to €2,163 (US$ 2,352) per sq. m..
• In Cologne, median apartment prices rose by 5.79% to €2,474 (US$ 2,690) per sq. m. One- and two-family houses had a price increase of 1.92% y-o-y to €2,099 (US$ 2,282) per sq. m.
• In Dortmund, median apartment prise fell by 3.05% to €1,300 (US$ 1,413) per sq. m. Prices of one- and two-family houses also fell by 1.06% to €1,872 (US$ 2,035) per sq. m.

In South Germany:

• Frankfurt had the weakest y-o-y apartment price hike in South Germany, increasing by 3.29% to €2,600 (US$ 2,827) per sq. m. The same is true for its one- and two-family houses, which rose by only 1.44% to €2,219 (US$ 2,413) per sq. m.
• Apartments in Munich enjoy the highest y-o-y price hike in the region, increasing by 10.52% to €4,821 (US$ 5,241) per sq. m. One- and two-family houses had a price increase of 5.75% to €3,627 (US$ 3,943) per sq. m.
• In Stuttgart, apartment prices rose by 9.07% to a median price of €2,519 (US$ 2,739) per sq. m., while the median price of one- and two-family houses rose by 8.29% to €2,525 (US$ 2,745) per sq. m.

All figures from Dr. Klein’s trend indicator of property prices (DTI). Source: www.globalpropertyquide.com