I don’t know if there is a German housing bubble or even whether there will be one. I do know that we hear a lot about it in the press – the result of zero, even negative, interest rates. So let me give you a little anecdote from my trip to Germany last week.

I was in Cologne for a few days for a family event and at some point got talking to a member of my family about saving and investing. Let’s call him Hans. Hans told me that the household investment situation in Germany was difficult because of low rates. Traditionally, ordinary people used their savings book as a principal investment vehicle. But because of negative rates, people were looking for alternative vehicles for investing. Hans said the problem was that you needed capital to have the necessary funds to find alternative places to put your hard-earned savings to work. So most ordinary people just accepted that they would earn no interest. I think he said something like ‘they are making money worthless’. That was the sentiment he conveyed to me.

Hans also told me that a mutual friend of ours – let’s call him Dieter – who did have some capital had bought Hans’ mother-in-law’s house to rent out exactly because real estate was one place where you could put your money to work. I asked Hans’ wife Ingrid about this and she told me that house prices in their town – a suburb of Cologne – were way too high. So I asked her to give me an example with her mother’s old house. Ingrid told me that her mom’s house was probably worth something like 350,000 euros. But, without revealing how much Dieter had paid, she said the house down the street, which was nearly identical to her mom’s house had recently sold for nearly 600,000 euros. That’s a big difference.

Later that evening, we were all at a gala and I got to talking to Dieter about his investment strategy. Here’s what he told me. Dieter said that, yes, he had invested in real estate because he wanted to put his money to work when there were limited opportunities elsewhere to put money to work. In the past, Germans like Dieter might have put their money to work through traditional fixed investment vehicles at the local savings bank. But because of the ECB’s interest rate policy, Germans are turning away from that.

I asked Dieter if he was concerned that he could lose money if interest rates went up and prices fell. He said he was concerned but that one could mitigate those concerns if one chose their investments wisely. For example, Dieter was investing in real estate close to home, in a community that he had known for nearly 50 years. Of course, that doesn’t counter Ingrid’s assertion that prices in this Cologne suburb were more than 60% above levels she thought were proper. And so I was left feeling that all the talk of a housing ‘bubble’ in Germany has some merit.

This is just one anecdote. But it fits the recent pattern of facts and warnings.

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