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After difficult years on the European residential real estate market, there are increasing signs of stabilization. Macroeconomic factors remain the most important drivers of market development and shape investment decisions more strongly than ever. The Catella Macroeconomic Dashboard, an analytical tool for assessing fair price levels at the macroeconomic level as well as for classifying investment opportunities, provides valuable insights into the current market cycle. As interest rate policy, inflation trends and geopolitical developments have a significant impact on the economic environment, an in-depth understanding of these factors is essential. The dashboard therefore analyses key financial and economic indicators and provides guidance for investment decisions.
The dashboard's indicators are analysed at national level and allow for cross-country comparisons as well as time-series analyses. For cross-country comparison, the indicators are normalised across all countries at the time of consideration and combined into an overall value for each country. For the temporal analysis, which is the focus here, each indicator for each country is normalized over time and then an average is calculated per point in time. This method allows for a systematic assessment of investment conditions in different geographical areas and time periods.
It takes into account relevant parameters that significantly determine the investment climate, including financing conditions, risk spreads and historical price trends.
The macroeconomic framework data of the German residential real estate market paint a differentiated picture. While some indicators show positive or fair price signals, others are red and suggest a further adjustment process.
All indicators that take into account the average net initial yield are currently in negative territory: neither the required return is achieved, nor do average investment opportunities offer a positive leverage effect compared to average financing conditions. In addition, both the spread between yields and bonds and the inflation trend have become less favourable compared to the last ten years. Another warning signal is provided by the stock market, where residential real estate shares in Germany fell slightly from mid-2024 to the end of the year.
On the positive side, at the end of last year, the ECB was expected to cut interest rates significantly over the next six months. In addition, the increase in house prices since 2015 has been lower compared to construction costs, indicating a fundamental increase in value rather than a bubble. The historical crash indicator also points to positive market sentiment. Although the current period of declining house prices has been relatively short, the extent of the price correction more than compensates for this brevity by historical standards.
Overall, the dashboard provides a differentiated view of a market in which sellers' and buyers' price expectations can converge again. More importantly, the evolution of these indicators over time points to improvement, especially in the context of developments in other European markets.
The chart below illustrates the average price moments since the beginning of 2023 and shows an improvement in all countries observed. At the end of 2024, price momentum was better in the majority of countries and thus more advantageous from a buyer's point of view than at any other time in the last two years.
The ongoing recovery of momentum corresponds to a stabilization of financing conditions. Nevertheless, persistent geopolitical uncertainties and political decisions that are difficult to predict – especially from the US – continue to influence market expectations. While the differences between each market are notable – the Scandinavian countries are showing strong signs of recovery, while some Central European markets are recovering more slowly – the combined indicator has improved across all markets.
The majority of European real estate markets are showing increasing signs of bottoming out, thus offering investors strategic opportunities. Despite existing macroeconomic challenges, the adjustment of valuation levels, the improvement in financing conditions and the continued high demand for residential real estate point to a strengthened investment climate. However, investors must continue to act flexibly in view of the dynamic geopolitical and financial market-specific conditions.
