FvS Wealth Price Index for Germany

Q1-2021: Inflation at 11.9 percent

At the end of the first quarter of 2021, prices for assets owned by private German households had risen by +11.9 % compared with the prior-year quarter. This is the highest price increase since the start of the time series in 2005.

Several developments fuelled this high inflation. First, across almost all asset categories, fiscal policy measures such as stimulus packages have supported asset prices. Second, monetary policy measures by the European Central Bank (ECB) boosted the demand for asset prices. Lastly, an expected economic recovery, already anticipated in prices, favored asset price inflation.

The record price increase is also due to a base effect. In the first quarter of 2020, asset prices fell by ‑2.7 % from the previous quarter and then rose again. Using the price average of the quarters Q4-2019 to Q2-2020 as a base, the increase in asset prices still amounts to +9.7 %, which would also be the largest value in the time series.

The price development of real assets (real estate, business wealth, consumer durables, collectibles and speculative items) owned by private German households dominates the development of the overall index. Real assets have become +12.8 % more expensive over the past four quarters.

The price of financial assets held by German households (saving deposits, shares, bonds, other financial assets) was significantly higher at the end of the year, with an increase of +7.8 %. In addition to fiscal and monetary policy measures to combat the economic consequences of the pandemic, the price level in the comparative quarter and an expected economic recovery are also decisive factors.

Real estate prices of private German households increased by +7.7 % compared with the prior-year quarter. The price rally on the real estate market continued even one year after the outbreak of the corona pandemic in Germany. At the same time, financing conditions for real estate are historically low and the low level of new construction activity is further exacerbating the shortage. In particular, the demand for residential real estate is high from both private and institutional buyers. By contrast, prices for commercial real estate, which is less frequently owned directly by private households, fell as a result of the containment measures against the corona pandemic. Especially prices for retail properties suffered from this development.

Compared to the end of the first quarter of 2020, prices for business wealth have risen by +58.4 %. This is mainly due to the fact that at the end of the prior-year quarter, prices were at their lowest because of the initial lockdown in Europe and the USA. Over the year 2020, business wealth prices have recovered quickly supported by stimulus packages and the expansionary monetary policy. The feared wave of insolvencies has also not occurred so far. Within the first quarter of 2021, prices have risen by +6.7 %. Business wealth prices are measured using the prices of small and medium-sized publicly traded companies.

Prices for consumer durables increased by +1.3 % compared to the prior-year quarter. This is the highest price increase in the category since the index was established. The most significant price surge was seen in prices for consumer vehicles and other consumer durables for leisure and culture. The price increases are driven by higher production costs, scarce resources, and the reversal of the VAT reduction.

Collectibles and speculative items increased in price by +1.0% compared to the prior-year quarter. Within the category, price developments varied. In particular, prices for fine wines increased significantly. The lifting of US punitive tariffs on European wines led to an immediate rise in demand in the first quarter, resulting in a +11.1 % price increase at the end of the first quarter compared to the same time last year. Historic automobiles and jewellery made of precious metals each recorded a price increase of around two percent over the past twelve months. The market for art objects experienced a slight price increase in the first quarter, supported by the exchange rate of the euro against the British pound. However, as prices for art objects had fallen significantly last year, the price decline compared to the prior-year quarter was -9.5 %.

Shares are +35.8 % more expensive than a year ago. On the one hand, this is due to the fact that at the end of the first quarter of last year, prices had crashed due to uncertainty about the future development of the pandemic. On the other hand, fiscal and monetary policy measures contributed to a rapid recovery of prices on the stock markets last year. More recently, an expected economic recovery favored stock prices, pushing them up by +7.1 % solely in the first quarter of 2021.

At the beginning of the year, prices for bonds held by German households fell sharply, so that on a year-on-year comparison the price increases of the previous year have already been offset (0.9 %). Prices for bonds held by German households fell as a response to higher inflation expectations. Some funds were shifted from bonds to the stock market.

The prices of other financial assets are measured by the prices of gold and commodities and increased by +7.9 % compared with the prior-year quarter. The price of gold fell in the first quarter of 2021, but it was already high at the beginning of the pandemic, so the price decline compared to the same quarter last year is -1.3%. Commodities have been subject to significant price fluctuations in the last four quarters. While prices fell at the beginning of the pandemic due to decreasing demand, they picked up significantly from the fourth quarter of 2020 and are now +29.3 % higher than at the beginning of the corona pandemic.

By definition, prices for saving deposits remain unchanged.

The cross-section of net wealth of private German households shows how asset price inflation makes wealth accumulation more difficult. Although asset price inflation for lower-middle-class households is not low at +4.7 %, the gap to the asset price growth of the wealthiest households amounts to more than ten percentage points. The reason for this is the different composition of household wealth. While savings account for the largest share of the net wealth of the lower-middle-class, the wealthiest households hold real estate and business wealth more frequently and to a greater extent, both of which have increased significantly in price.

In the cross-section of household age (measured by the age of the household's reference person), the distribution of business wealth has the largest impact. Households beyond retirement age rarely own business wealth and therefore have the lowest price appreciation. Middle-aged households (45-54 years old) proportionally have the most business wealth and therefore enjoy a +15.5 % increase in the price of their assets.

Consumer prices increased by +1.3 % compared to the prior-year quarter. This was due to the reversal of the VAT increase, the newly introduced CO² price, an increase in the price of raw materials and higher fixed costs. This is particularly noticeable in prices for transport (+6.3 %) and for clothing and footwear (+3.8 %). In parallel, the collection of consumer prices is subject to problems due to the lockdown measures, as some goods were not available during the period.

Producer prices rose +2.1 % compared to the same quarter of the previous year. While producer prices had fallen in the spring and summer, they stabilized at the end of the year and rose significantly in the first quarter of 2021. The price of energy and intermediate goods had a significant impact.

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