FvS Wealth Price Index for Germany

Q2-2020: Recovery in the second quarter

In the second quarter of 2020, the development of asset prices of German private households is influenced by the Covid-19 pandemic. While prices fell by -2.7% within the first quarter, they rose by +3.2% within the second quarter and were at mid-year +4.4% higher than in the previous year.

Real assets account for the largest share of the assets of private German households (79%), while the rest corresponds to financial assets (21%). At mid-year, the price of real assets in German households was +5.3% higher than in the previous year. In the most recent quarter, prices for real assets rose by +3.6%, after having fallen significantly beforehand. At +0.1%, the price of financial assets held by German households remained at the previous year's level. As a result of the pandemic, prices for many financial assets had collapsed and only recovered during the second quarter of 2020.

So far, the course of the Covid-19 pandemic has slowed down the price rally on the German real estate markets only insignificantly. The demand for residential real estate remains high. Only prices for commercial real estate, which private households own less frequently, have stalled. Compared to the same quarter of the previous year, the price of real estate owned by private households has risen by +5.8%. Although this is the lowest price growth rate since 2015, it is still significantly high. At mid-year, prices for business wealth (measured in terms of the share prices of small and medium-sized publicly traded companies) were +3.9 % higher than in the previous year. Economic growth in Germany has suffered greatly as a result of the global lockdowns, which was reflected in the prices for publicly traded companies at the end of the first quarter. With reopening of the economy, prices are recovering, so that they have risen compared to the previous year's value. Durable consumer goods increased in price by +0.8 % at the end of the year.

Due to the gloomy earnings outlook and the uncertain future triggered by the Covid-19 pandemic, stock prices worldwide fell in the first half of the year. However, economic stimulus and monetary policy measures enabled prices to recover very quickly afterwards. By mid-year, the prices of German households' equity assets were only -1.2 % below the mid-year prices of the previous year. The prices of bonds held by German households have been relatively volatile over the past 12 months. While they continued to rise in the second half of 2019 due to falling interest rates, they fell in the first half of 2020, so that prices remained the same in a 12-month comparison (+0.0 %). By contrast, prices for other financial assets (measured via gold and commodity prices) rose by +13.5 % year-on-year. This is mainly due to the price of gold, which rose by +28.0% year-on-year. Commodity prices fell by -11.0 % due to weakening demand from the economy.

Asset price inflation is relatively homogeneous across the cross-section of net wealth of German households at mid-year. With the exception of the lower middle class, the rate of inflation is within a range of one percentage point, with the exception of households in the lower middle class. The reason for the homogeneous picture is the small change in the price of business wealth, which has caused the prices of the assets of wealthy households to rise sharply in recent years. The lower middle class has low real estate assets and a proportionately high savings rate. As a result, the price increase for the assets of these households is only +1.7%.

The range of asset price inflation is only half a percentage point across the age of the reference person in households. It is lowest for younger households, as they are the least likely to have real estate assets and increases with the age of the household.

Consumer prices rose by +0.8% year-on-year in the middle of the year. Previously, the price increase had been between one and two percent. The reason for the lower consumer price inflation is an excess supply. Due to the lockdowns goods were produced but not sold. This is particularly noticeable in the price development for energy sources, clothing and goods and services for vehicles. By contrast, there is no discernible influence of monetary policy measures on the development of consumer prices. Producer prices fell by -2.0% year-on-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%).

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 2014. 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 (2016). 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 population cross-section according to 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

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