FvS Wealth Price Index for Germany

Q2-2021: Real estate prices soaring

By the end of the second quarter of 2021, prices for assets owned by private German households had risen by +11.7% compared with the same quarter a year earlier. The increase was the second highest since the start of the time series in 2005, with the strongest price increase occurring in the first quarter of 2021.

Several developments have favored these high inflation rates. First, the European Central Bank's continued very expansionary monetary policy and the expectations not to change it even in the event of a rise in consumer price inflation have sustained asset prices. The expectation of a possible fall in the value of money also boosted demand for wealth assets. In addition, stimulus measures and other fiscal assistance continued to contribute upward pressure on asset prices.

As in the previous quarter, the strong price increase is partly attributable to a base effect. In the first quarter of 2020, asset prices fell by -2.7% compared with the previous quarter and rebounded in the second quarter of 2020. Because the asset price index had not yet reached its long-term trend, we assume that a base effect remains in place.  

The price development of real assets (real estate, business wealth, consumer durables, collectibles and speculative items) owned by German households dominates the development of the overall index. Over the past four quarters, the price of real assets has risen by +12.9%.

The price of financial assets held by German households (saving deposits, shares, bonds, other financial assets) increased by 6% compared with the prior-year quarter. Nevertheless, annual growth rates have been permanently lower than for the prices of tangible assets since 2013.

In the second quarter of 2021, real estate prices of private German households increased at the fastest rate since the start of the time series in 2005. Compared with the same quarter of the previous year, real estate prices have risen by +9.8% and by 3% compared with the previous quarter. With very favorable financing conditions, lockdowns, and anticipations of more flexibility regarding home office rules, particularly demand for owner-occupied housing is on the rise. Supply is rising less rapidly, so excess demand is driving prices higher. Prices for commercial real estate continue to be depressed. Since the outbreak of the pandemic, prices for retail properties have suffered the most.

Compared to the end of the second quarter of 2020, prices for business wealth increased by +37.2%. First-quarter growth was 58.4%. These very high values are partly due to a base effect and partly to a rapid recovery. After a sharp decline in the first half of 2020, business asset prices have risen quickly again, supported by temporary aid, economic stimulus packages and expansionary monetary policy. In addition, a feared wave of bankruptcies has failed to materialize so far. Compared with the previous quarter, prices increased by +5.1%. Prices for business assets are measured using the prices of small and medium-sized publicly traded companies.

Prices for consumer durables increased by +2.0% compared with the prior-year quarter. This is the highest annual price increase in the category since the inception of the index. Compared with the previous quarter, prices rose by +0.7%. The most significant price jump was seen in the prices of used vehicles (+3.1%). As in the first quarter of 2021, a base effect can still be identified.

The price of collectibles and speculative items increased by +8.1% compared with the prior-year quarter. Price developments varied within this category. Prices for fine wines (18.4%) and historic automobiles (9.8%) rose most sharply. Prices for fine wines in particular have recovered strongly after a sharp decline in the first half of 2020.

Shares are +24% more expensive than a year ago and 6.3% more expensive than in the previous quarter. First, this is because at the end of the first half of last year, prices had not yet fully recovered due to uncertainty about the future development of the pandemic. Second, fiscal and monetary policy measures contributed to a rapid recovery of stock market prices last year.

Prices for bonds held by German households fell in the second quarter for the second time in a row. They are -1.3% below the prior-year level and -0.7% below the previous quarter's level. Prices for bonds fell due to uncertainty about the economic growth outlook due to new mutations of the coronavirus and increased inflation expectations, in particularly in the USA.

The prices of other financial assets measured via the prices of gold and commodities increased by +12.7% compared with the prior-year quarter (6.9% q-o-q). The price of gold in the second quarter of 2021 was 1.1% lower than the comparatively high prices in the first half of 2020. Commodities have been volatile over the past four quarters. While prices fell at the start of the pandemic due to weakening demand, they picked up significantly from the fourth quarter of 2020 and are now +47.9% higher than at the start of the coronavirus pandemic.

By definition, prices for saving deposits remain unchanged.

The cross-section of net wealth of German private households reveals that the net wealth of the lower middle class has grown at the slowest pace since 2017. Although asset price inflation for lower-middle class households is not low at +5.0%, the gap to the asset price growth of the wealthiest households is equally not small. This is due to the different composition of wealth. While savings account for the largest share of the net wealth of the lower-middle-class, the wealthiest households more frequently and to a greater extent own real estate, business assets and shares, which have increased significantly in price. The asset prices of the wealthiest households are also much more volatile.

In the cross-section of household age (measured by the age of the household's reference person), asset prices of middle-aged households are the most volatile. Compared to 2017, they have also increased the most. Business assets make a crucial difference here. Retirement-age households rarely have business assets and therefore show the lowest price increases. Middle-aged households (45-54 years) have the highest proportion of business assets and therefore enjoy a year-on-year increase in asset prices of +14.1%.

Producer prices increased by +7.1% compared with the prior-year quarter. Global supply chain bottlenecks drove up prices in Germany in particular for intermediate goods such as metals, secondary raw materials and wood. Rising energy prices also contributed to the higher producer prices.

Consumer prices rose by +2.4% compared with the prior-year quarter. The Federal Statistical Office attributes the increase to the base effect due to the reduction in value added tax in July 2020. In addition, sharply rising energy prices contributed to the increase in the consumer price index.

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