housing market bubble

The empirica Housing Market Bubble Index provides a relative risk assessment of the regional housing markets. It is based on the analysis of increases in various indicators and not on the exceeding of absolute threshold values due to the specific local characteristics.

The current sharp rise in rents contrasts with the moderate increase in purchase prices. This is positive for the risk of a bubble, as the high valuation level of property is increasingly justified. At the same time, the slight fall in interest rates is leading to an increase in new lending for residential construction, which in turn harbours the potential for further price rises and thus increases the risk of a bubble.

The empirica housing bubble index indicates that the risk of a housing market bubble in Germany is decreasing. In recent quarters, there has been a change: there are fewer and fewer vulnerable districts. The danger is still there, but its extent is getting smaller. The number of endangered regions has been falling for three quarters in a row.

The empirica housing market bubble index rises more strongly in the third quarter of 2021, especially in the completions sub-index, and somewhat less in the multiplier and price-income sub-indices. The overall index rises most strongly in the swarm cities, followed by the growth and shrinking regions.

empirica developed the bubble index seven years ago to show that there are no bubbles in the German real estate market. In recent years, however, the sub-indices “multiplier” and “price-income ratio” have continued to rise.

The new empirica bubble index shows an initial increase in the ratio of prices to income and a further increase in multipliers and debt.