At mid-year, asset price inflation in Germany stands at -3.3 %. For the fourth time in a row, asset prices of German private households have fallen compared to the same quarter of the previous year. The price decline remains at the highest level since the financial crisis. However, the price decline has lost momentum, with prices moving sideways at -0.1 % in the latest quarter Q2-2023.
The latest decline in the asset price index continues the trend reversal in asset markets that has put an end to the price rally that has been ongoing since 2014. The main reason for the trend reversal is the emergence of consumer price inflation, which is related to the monetary policy of the past decade, fiscal policy during the corona pandemic and the global economic consequences of the pandemic. Capital markets and central banks reacted to consumer price inflation by raising interest rates, which, with a certain time lag, led to a decline in the price of real estate, the most important asset of private households in Germany. Prices for business wealth and financial goods such as shares and bonds also suffered greatly from rising interest rates. However, as consumer price inflation eased in the first half of the year and fears of a severe recession have not materialised so far, asset prices stabilised in the most recent past quarter.
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.
Real assets (real estate, business wealth, consumer durables and collective & speculative goods) owned by private German households were trading -4.3% cheaper at the end of the second quarter than in the same quarter of the previous year. One percentage point of the price decline is attributable to the second quarter of 2023.
After the sharp drop in prices in 2022, the price of the financial assets of private German households (savings and demand deposits, shares, bonds and other financial assets) has stabilised in the last three quarters. Compared to the middle of the previous year, a slight price increase of +0.8% was recorded.
After the all-time high on the German real estate market in the middle of last year, real estate prices (as measured by the vdpResearch price indices) have fallen continuously and are now trading -5.7% cheaper than in the middle of last year.1 However, at -1.0%, the price decline within the most recent second quarter was smaller than in the two previous quarters (-2.1% in Q1-2023 and 1.9% in Q4-2022). The weakening dynamics indicate a stabilisation of the price level.
Looking at the price development on the real estate market over five years, a price increase of just under 30% is still apparent, and over ten years the price increase is even almost 75%.
The reasons for the fall in prices on the real estate market can be found in the rising costs of financing and maintaining a property. On the one hand, interest rates for mortgage loans have risen massively since 2021. While in 2021 home loans could still be arranged with an interest rate of one per cent, buyers now have to bear interest rates of four per cent. At the same time, prices for construction, maintenance and renovation have also risen. From the government side, too, it is to be expected that energy refurbishment requirements will continue to rise, further reducing buyers' willingness to pay. Concerns about a recession are also limiting buyers' willingness to take risks.
Due to the rise in costs, new construction activity has collapsed drastically within the past four quarters, so that the supply of real estate has expanded only insufficiently. The excess demand, which has already been expanded over the past few years by the movement into metropolitan regions, the immigration of refugees and the preference for more living space, has increased further. This has prevented real estate prices from falling more than could have been expected given the changed environment.
Prices for business wealth (privately owned companies) have stabilised further after falling sharply in the previous year. At +2.5 %, the prices for business wealth of private German households are now already above the level of the middle of the previous year. While last year's price decline was due to increased consumer price inflation, geopolitical conflicts and high energy prices, business wealth prices stabilised again as concerns about a resulting deep recession did not materialise.
Consumer durables continued to increase in price by +5.5 % compared to the middle of the previous year. However, the inflation rate is clearly below the increase of the previous quarters. For example, at around six per cent, the inflation rate for consumer durables was well below last year's rate of just under ten per cent. While supply chain problems and high prices for intermediate products and energy costs were still driving up prices last year, the problem situation is increasingly improving.
The highest price increase among all assets is to be found in collectibles and speculative items, which continue to enjoy high demand. They were traded at +10.4 % more expensive than in the middle of the previous year. The price increase was particularly strong for art objects, which rose in price by around 30 per cent compared to the same quarter last year. The reason for the strong price increase continues to be catch-up effects from the corona pandemic. At the same time, price growth already slowed somewhat in the second quarter of 2023. Other goods in the category, such as historic automobiles, only increased in price by just under five percent and precious wines by just one percent.
The prices for bond assets owned by private German households stabilised in the past quarters, after a historic price decline was still recorded on the bond markets in the previous year. Compared to the middle of the previous year, the price of bonds was still -4.8% below the previous year's level. Within the most recent quarter, prices stagnated. Since more than two-thirds of German households' bond assets are invested in securities of German issuers, their price development of 5.1 % sets the trend for total bond assets. The remaining bond assets, which are almost exclusively invested in Europe and North America, suffered a price drop of around four percent. The driving force behind the price development on the bond markets is consumer price inflation, which eased in Europe and North America in the most recent quarters and ensured a stabilisation of the bond markets.
Prices for the share assets of private households have risen in three of the last four quarters and have thus recovered from the price decline in 2022. At mid-year, the price of equity assets was +9.6 % above the previous year's prices. The price recovery was particularly marked for German, European and North American equities. The reason for the recovery is the slowdown in consumer price inflation and the fact that fears of a strong recession have not materialised so far. On the other hand, shares from the emerging and frontier markets suffered price setbacks, some of which were considerable.
The price of other financial assets, which is measured by the prices of gold and commodities traded on the stock exchange, fell by -7.4% compared to the same quarter of the previous year. There was a price correction of -18.7% on the commodity markets, after commodity prices had risen by 70% in some cases within one year in previous years. Gold was +3.4% more expensive in the middle of the year than in the middle of the previous year.
The prices for savings and demand deposits remain unchanged by definition.
A look at the cross-section of the net wealth of private German households shows that households with a high ratio of savings and demand deposits, as most often found in the lower middle class, suffer the smallest price decline of -0.4%. These households are less likely to have assets such as business wealth or real estate that have fallen in price. Households in the upper middle class have suffered the greatest price decline at -3.9%, as they have the highest proportion of real estate assets.
In the cross-section of household age (measured by the age of the household reference person), asset price inflation spans the narrow interval of -2.6% to -3.6%. The lowest price decline is found among the youngest households, as they have the smallest share of real estate. Households beyond retirement age, on the other hand, have the highest proportion of real estate assets and therefore also suffer the strongest price decline of all age groups.
Consumer prices, measured by the consumer price index of the Federal Statistical Office, have risen by +6.5 % over the past four quarters. An increase of +1.2 % is attributable to the most recent quarter. Producer prices rose by only +1.8 % in the same period. After producer prices rose massively in the second half of 2022, they fell in the first two quarters of this year.
The weighing of the asset price index was updated for the first time to the year 2021 with this publication. Until the previous publication (Q1-2023), the weighing was based on the year 2017. The update was carried out on the basis of the study "Private Haushalte und Ihre Finanzen" (Private Households and Their Finances) published by the Deutsche Bundesbank2 in April 2023 with the help of other data sources (Bundesverband Investment und Asset Management (BVI), Gesamtverband der Deutschen Versicherungswirtschaft (GDV) e.V., International Monetary Fund (IMF)), which also refer to the year 2021.
Based on the statistics evaluated, the asset composition of private German households has not changed structurally. Real estate continues to flow into the index with a weight of 63.7 %. There are also only minor changes in the other components, which have no substantial influence on the index.
Table A: Comparison of the new and old weighing of the asset price index
|2021 (new)||2017 (old)|
|Gross wealth in thsd. Euro||346.5||262.5|
|Net wealth in thsd. Euro||316.5||232.8|
|Business wealth (net)||11.5%||11.7%|
|Collectibles & speculative items||0.1%||0.5%|
|Other financial assets||0.6%||0.6%|
The indexation of the time series was set to the year 2021 with the weighing. Index components that grow or fall strongly after the year of indexation receive an increasingly larger or smaller effect on the overall index due to the geometric linking of the growth rates. The regular updating of the indexation counteracts this bias.
Under the new indexation and weighing, the change in the asset price index for the first quarter of 2023 is -3.3 per cent. With the old weighing and indexation, the value would be -3.4%. The record value of +12.1% from Q3-2021 is now +11.4% under the new weighing and indexation. The differences arise from the effect described above.
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 2021. 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 (2023). The weighting scheme of the time series is based on the survey results of the 2021 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.
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
destatis – Statistisches Bundesamt
Gesamtverband der Deutschen Versicherungswirtschaft (GDV) e.V.
Historic Automobile Group International (HAGI)
Internationaler Währungsfonds (IWF)