In the economic symphony of Germany, a disquieting note is emerging, reminiscent of the bygone era of the Silent Depression in 1921. The question lingering in the air: Will history repeat itself, and if so, how different will it be this time?
The catalyst for this unease is the precipitous decline in home prices across Germany, driven by a perfect storm of factors: soaring interest rates, escalating construction costs, and a labyrinth of bureaucratic hurdles in the housing sector. Torsten Sløk’s assertion that “home prices are in freefall” paints a vivid picture of the challenges gripping the German real estate market.
One striking facet of this crisis is the substantial impact of taxes and fees on property purchases in Germany, amounting to a hefty 12%. For those who ventured into real estate investments in 2022 with 20% equity, the grim reality has unfolded – their entire investment now stands jeopardized. The echoes of the Silent Depression become poignant as economic landscapes shift and investments vanish.
Delving deeper, two key reasons are unveiled for Germany’s paradox of affluence and financial struggle. Firstly, the low rate of home ownership, a stark contrast to the nation’s overall wealth. Secondly, an extremely low equity ownership rate compounds the financial challenges faced by its citizens.
The unique phenomenon of “German Angst” is spotlighted as individuals channel their life savings into bank accounts, only to earn negative real yields. Simultaneously, a disproportionate amount is spent on various insurance policies, creating a financial conundrum for many.
While the cost of living crisis has been a focal point of discussions, especially in the United States, a glance across the Atlantic reveals a European narrative steeped in its own set of challenges. Wage growth in Europe, notably in Germany, has experienced a sharp decline of 7.2% from 2019 to 2023, amplifying economic anxieties.
As Germany grapples with the complex interplay of economic forces, the parallels to the Silent Depression era evoke contemplation. The specter of vanished investments, coupled with economic challenges, prompts a critical examination of the nation’s financial landscape and raises questions about the potential ripple effects on the global economic stage.
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"Home prices are in freefall in Germany, driven by higher rates, high construction costs, and massive amounts of red tape in the housing sector."
– Torsten Sløk pic.twitter.com/4M2YwvAiZ9
— Daily Chartbook (@dailychartbook) January 26, 2024
As property purchases in Germany are subject to 12% taxes and fees, people who bought real estate in 2022 with 20% equity have just lost their entire investment. pic.twitter.com/3wwcqEcPZp
— Michael A. Arouet (@MichaelAArouet) January 26, 2024
There are two reasons why Germany is a rich country with poor people:
1. Low home ownership rate
2. Extremely low equities ownership rate
Due to German Angst they put life savings into bank accounts earning negative real yields and spend too much for insurance of all sorts. pic.twitter.com/pj0FCNMeKZ
— Michael A. Arouet (@MichaelAArouet) January 27, 2024
There have been many complaints about the cost of living crisis in the US, but please take a look what has been happening in Europe pic.twitter.com/oyLuwJMN3b
— Michael A. Arouet (@MichaelAArouet) January 27, 2024