FvS Wealth Price Index for Germany

Q3-2020: As if there was no pandemic

At the end of the third quarter, the prices of assets held by German households rose year-on-year by +5.5%. Prices for real estate, the most important asset of German households, are immune to the pandemic and have risen by almost seven percent. However, the pandemic is impacting prices on financial assets and prices of collectibles and speculative goods.

A look at the two broad categories of assets in German households (real and financial assets) shows that the development is driven by real assets. 79% of total assets in German households consists of real assets, which rose by +6.9% compared with the same quarter last year. Financial assets account for the remaining 21%, which suffered a marginal decline in prices (-0.1%).

Within real assets, the price development of real estate plays a leading role. The price rally on the real estate markets has not yet been slowed down by the Covid-19 pandemic. Compared with the equivalent quarter in the previous year, the price of real estate assets owned by German households rose by +6.8%. Demand for real estate is high both from investors and private households. On the one hand, the shortage of residential real estate in urban regions is driving up prices, while on the other investors are missing out on fixed-income investment opportunities with attractive returns. Only the prices for commercial real estate have been weakened by the pandemic and show a slight drop in prices in the most recent quarter. However, the share of commercial real estate in the total assets of private German households is low.

Prices for business wealth have been volatile since the beginning of the pandemic. Increased risks and gloomy earnings prospects have caused prices for private companies, which are measured by the share prices of small and medium-sized publicly traded companies, to fall sharply at the beginning of the pandemic. As a result of countermeasures taken by the Federal Government, prices rose again in the second quarter and were +10.3% higher than in the previous year at the end of the third quarter.

Prices for consumer durables fell by -0.7% year-on-year. This was triggered by an excess supply, as German households reduced their consumer spending.

Collectible and speculative goods saw prices fall by -5.8% year-on-year. In particular, prices for objects of art (-11.0%), historic automobiles (-9.7%) and precious wines (-3.9%) have become cheaper since the outbreak of the pandemic.

The prices of financial assets held by German households have returned to the level of a year ago, following significant price movements over the past four quarters. Share prices underwent a V-shaped movement in the first half of the year and rose again slightly in the third quarter. Compared with the same quarter in the previous year, this price movement resulted in a marginal decline in prices of -0.5%. The price trend for bonds was significantly more stable. Although prices also fell in the first quarter, reductions in key interest rates supported the prices of bonds. At the end of the third quarter, bond prices were 1.2% down year-on-year. The price of other financial assets, which is approximated by gold and commodity prices, rose by +10.1%. The price of gold is the main factor here (+18.9%), which has been rising continuously for two years now, not only due to the pandemic. The prices for commodities fell significantly, triggered by a massive drop in demand, and only stabilized again in the third quarter. Compared with the same quarter of the previous year, commodity prices are now -6.3% lower.

Asset price inflation is moderate in the cross-section of net wealth of German households. Except for households in the lower middle class, the rate of price increases lies within a range of around two percentage points. The high increase in the price of business wealth allows the upper middle class (+5.2%) and the wealthiest households (+6.1%) to benefit from the trend in comparison to other households. Households in the lower middle class have a large proportion of their assets in savings and sight deposits, which are not subject to price changes. Therefore, they have by far the lowest rate of price increase of their assets with +1.5%.

In the cross-section of the age of households (measured by the age of the household's reference person), the range of asset price inflation is only one percentage point. Households between 45 and 64 years of age can show the highest increase in the price of their assets, as they most often possess business wealth. Likewise, the share of real estate in total assets is higher in the age categories than among young households.

At -0.1% at the end of the third quarter, consumer prices were at the same level as in the previous year's quarter. This is due to a decline in demand, as uncertainty surrounding future income has led to a shift in household consumer spending or to a reduction in it. Prices for clothing, transport, and postal and telecommunications services have fallen particularly sharply. Producer prices fell by -1.3% compared with the equivalent quarter in the previous year.

The Flossbach von Storch (FvS) Wealth Price Index measures the price development of the assets held by German households. The index corresponds to the weighted price development of real and financial assets owned by German households. In addition to real estate and business wealth, real assets also include durable consumer goods as well as collectibles and speculative items. Financial assets are divided into shares, bonds, saving deposits as well as other financial assets. Real estate is by far the largest category (63.7 %), followed by business wealth (11.7 %) and cash holdings (10.5 %).

With the publication of this index, both the year of weighing and the year of indexation were moved from 2014 to 2017. This leads to forced changes in past index levels. 2017 was chosen as the weighing year because the publication of the third wave of the study "Private Haushalte und ihre Finanzen " by the Deutsche Bundesbank (Deutsche Bundesbank: Monatsbericht April 2019) provides new data on the asset composition of German households. All sources that were also used for the weighing scheme have also been updated with 2017 data.

The FvS Wealth Price Index measures the price change of assets held by German households. The index is calculated using the Laspeyres method as a weighted average of time series of indexed prices which reflect the change in the prices of assets in euro. The index is based on the average for the year 2017. Where necessary, quality-adjusted time series have been used and gains, such as interest payments, have not been taken into account. There is no valuation approach employed. For the asset class shares, for example, the share prices and not the price-earnings ratio are taken into account. This corresponds to the procedure for commodity price indices, in which only commodity prices and not the price-utility ratio are included.

The relevant assets are selected via the study "Private Haushalte und ihre Finanzen" (PHF) of the Deutsche Bundesbank (2019). The weighting scheme of the time series is based on the survey results of the 2014 PHF study and corresponds to the share of assets in the total assets of German households. The composition of household assets in the cross-section of the population across wealth and the age of the household members is very heterogeneous. Therefore, the FvS Wealth Price Index is additionally calculated for different quantiles of the distribution of net wealth of German households (total wealth less liabilities) and for different age groups (measured by the age of the reference person of the household).

The assets of a household are divided into various sub-groups of real assets and financial assets. Real assets include real estate, business wealth (net), consumer durables, and collectors' and speculative items. Financial assets include savings deposits, shares, bonds and other financial assets. Assets in the form of funds units and credit balances under cash value insurance contracts are allocated to the aforementioned components according to their respective composition.

The price development of real estate assets is tracked by the vdp-Immobilienpreisindizes (real estate price indices) by vdpResearch GmbH. The index "Wohnen" (residential) reflects the change in prices for owner-occupied residential property, while the price change for other properties is covered by the index "Gesamt" (total). Since the "Gesamt" index is available only from 2008 onwards, quarterly values before 2008 are approximated using average annual growth. The two indices are weighted according to the distribution of household wealth. Both price indices are based on a transaction database that represents almost 90 percent of the turnover of the German real estate market.

Private business wealth comprise all non-publicly traded participations of private households. The price development is approximated by the SDAX price index of Deutsche Börse, which records prices for medium-sized companies. The SDAX price index reflects the price development of 50 publicly traded companies in traditional industrial sectors that follow the MDAX-listed stocks in terms of market capitalisation and stock exchange turnover.

In order to measure the price development of durable consumer goods such as vehicles and furniture, the corresponding components of the consumer price index are used by destatis (Federal Statistical Office). The relative weighting is based on the respective weight in the consumer price index.

The price development of collectors' and speculative items is measured equally by the four representative goods categories jewellery, artworks, historical automobiles and precious wines. Jewellery prices are measured using the "Schmuck aus Edelmetallen" component of the consumer price index. The Artprice Global Index from Artprice.com is used to track price developments on the art market. This price index is based on auction prices for paintings, sculptures, drawings, photographs, prints, aquarelles and similar items. The HAGI Top Index of the Historic Automobile Group International (HAGI) is used to measure the prices of historic automobiles. The index tracks the price development of 50 rare historical automobile types based on a database of transactions covering more than 18,000 individual vehicles. Quarterly values prior to 2009 are based on an equally weighted recalculation interpolating during the year. The price development of precious wines is measured with the Liv-ex Fine Wine 100 published by the trading platform Liv-ex Ltd. The index measures the price development of the premium segment of the wine market for wines for which a secondary market exists. The index primarily includes Bordeaux wines, but also wines from the wine growing regions of Burgundy, Rhône, Champagne and Italy.

Since saving/sight deposits are not subject to a price directly, they are assumed not to show any price changes and are therefore modeled by a constant time series. This category includes, inter alia, current, savings, fixed-term and call money accounts, balances on building savings and non-governmental pension contracts and claims on other households.

The price development of shares is recorded by various share price indices. Using data from the Coordinated Portfolio Investment Survey (CPIS) of the International Monetary Fund (IMF), the geographical weighting of German equity investments is determined and, based on this, MSCI price indices are weighted accordingly.

Similar to the procedure for equity investments, the geographical distribution of bond investments is determined using data from the IMF and the Bank for International Settlements (BIS). The price development is calculated using the corresponding bond price indices from Barclays Bank PLC. Both government and corporate bonds with different credit ratings and residual maturities are taken into account.

Other financial assets, which are not covered by the three previous categories, are measured by the development of gold and commodity prices. The Rogers International Commodity Index is used for the price development of commodities, which reflects the price development of futures on various commodities. The price of gold is determined via the London Bullion Market.

The capital, which is bundled in insurance contracts and funds, is allocated on the basis of data provided by the German Insurance Association (GDV) and the Federal Association for Investment and Asset Management (BVI).

In the case of time series with daily values, the average end-of-day index status of the last quarter month is always used. For indices available monthly, the last monthly value in the quarter is used.

Revision of historical data of the underlying time series may result in a deviation of the historical index values from previous publications.

Publication dates

The index values of a quarter are published as follows:

First quarter: 15 May
Second quarter: 15 August
Third quarter: 15 November
Fourth quarter: 15 February of the following year

If the date falls on a weekend or a public holiday, publication will take place on the next working day.

List of data sources

Art Market Research Developments Ltd.
Bank für Internationalen Zahlungsausgleich (BIZ)
Barclays Bank PLC
Bundesverband Investment und Asset
Management (BVI)
Deutsche Bundesbank
destatis – Statistisches Bundesamt
Gesamtverband der Deutschen Versicherungswirtschaft (GDV) e.V.
Historic Automobile Group International (HAGI)
Internationaler Währungsfonds (IWF)
Liv-ex Ltd
vdpResearch GmbH