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The Stability of the German Housing Market

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  • Voigtländer, Michael

Abstract

The last decade has been marked by cycles of excessive boom and bust in the housing market. However, not all countries have experienced high volatility in their house prices. Indeed, Germany has been unique in retaining flat price levels over the whole period and failing to respond to any of the macroeconomic shocks. The main reason for this stability can be found in real estate finance and in the existence of a sophisticated rental market. While in other countries monetary stimuli are effectively transmitted to the real economy via the housing market, the German insistence on prudential lending isolates the housing market from financial market distortions. By demanding high deposits, aligning lending to the mortgage lending value instead of the market value and by offering predominantly fixed-rate mortgages, banks reduce the risk of defaults and thus contribute to stability in the market. This system has evolved as a result not of regulations but of a sophisticated rental market which enables households to save their own funds for house purchases. This, in turn, explains the preference for fixed-rate mortgages.

Suggested Citation

  • Voigtländer, Michael, 2012. "The Stability of the German Housing Market," MPRA Paper 43315, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:43315
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    File URL: https://mpra.ub.uni-muenchen.de/43315/1/MPRA_paper_43315.pdf
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    References listed on IDEAS

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    7. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
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    Cited by:

    1. Adrienne Csizmady & József Hegedüs & Christophe André & Elisabeth Beckmann, & Antje Hildebrandt & Krisztina Jäger-Gyovai & Agnieszka Nierodka & Martin Schneider & Karin Wagner & Guenter Karl & Robert , 2016. "Papers presented during the Narodowy Bank Polski Workshop: Recent trends in the real estate market and its analysis - 2015 edition," NBP Conference Publications, Narodowy Bank Polski, Economic Research Department, number 2 edited by Hanna Augustyniak & Jacek Łaszek & Krzysztof Olszewski & Joanna Waszczuk.
    2. Martin Schneider & Karin Wagner, 2015. "Housing Markets in Austria, Germany and Switzerland," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 42-58.

    More about this item

    Keywords

    German housing market; housing finance; transmission of monetary policy; rental market;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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