FvS Wealth Price Index for Germany

Q1-2020: Decline within the first quarter

The corona pandemic is visible in the development of asset prices in the first quarter of 2020. Within the first quarter, the price of assets held by German households fell by -2.7%. This development is driven by the fall in the price of financial assets and business wealth.

Compared to the same quarter of the previous year, however, asset prices rose by +2.4%, as the decline in prices is limited exclusively to the first quarter of 2020. Consumer prices show a similar development. While they fell by -0.2% in the first quarter of 2020, they rose by +1.6% year-on-year.

Real assets account for the largest share of the assets of private German households (79%), while the rest corresponds to financial assets (21%). Both asset categories recorded a decline in prices during the first quarter. Real assets have fallen by -2.1% since the beginning of the year and financial assets by as much as -5.6%. While financial assets also fell in price by -2.6% compared to the same quarter last year, the price of real assets rose by +3.5%.

Within real assets, the Corona crisis is particularly evident in the prices of business wealth (measured by the share prices of small and medium-sized companies). Within the first quarter, the decline in prices of business wealth amounted to -23.0%, so that prices are now at the level of 2016. Compared with the same quarter of the previous year, the decline in the price of business wealth is somewhat milder at -14.1%. On the real estate market, the effects of the crisis are not yet apparent at the end of the first quarter. Real estate prices react relatively slowly, as several weeks often elapse between viewing an object and signing a contract. Real estate prices have risen evenly over the last four quarters, resulting in an increase of +6.4% compared to the same quarter of the previous year. The Corona crisis was also not reflected in the prices of durable consumer goods and of collectibles and speculative items at the end of the first quarter. Durable consumer goods rose by +0.9% compared to the same quarter of the previous year and prices for collectibles and speculative items increased by +1.3%.

Among financial assets, the influence of the Corona pandemic is particularly evident in shares and other financial assets. The prices of shares held by German households fell by -21.7% in the first quarter. Even compared to the same quarter last year, share prices fell significantly by -14.0%. By contrast, prices for other financial assets (measured via gold and commodity prices) rose by +12.4% year-on-year. This was mainly due to the price of gold, which rose by +27.3% year on year. For bonds, the price change within the first quarter was only +0.2%. Although prices on the bond market fell sharply at the end of March, prices recovered quickly as a result of monetary policy measures such as the US Federal Reserve's interest rate cut. In comparison with the same quarter of the previous year, a price increase of +2.3% was recorded.  By definition, the price of German households' savings remains unchanged.

In the cross-section of the net wealth of German households, the relative share of business wealth and real estate is decisive for the level of asset price inflation. The upper middle class owns the largest share of real estate while business wealth is low. As a result, the upper middle class experiences the highest rate of inflation at +4.1% year-on-year. Although the wealthiest households also own a proportionately high amount of real estate as well, the high proportion of business wealth pushes the inflation rate of their total assets down to +1.3%. Within the first quarter, the prices of the assets of the wealthiest households even fell by -4.4%. Year-on-year, asset price inflation is lowest for the lower middle class at +1.0%. At the same time, they suffered the smallest price decline in the first quarter at -0.3%.

On average, asset price inflation is higher for older households, as they own a high proportion of real estate. For example, the oldest households (age group 75+) have seen the price of their assets rise by +3.7% compared to the same quarter of the previous year, while households in early retirement age (age group 65-74) have seen the price of their assets rise by +3.5%. Even within the first quarter, the price decreases for these household groups were relatively mild at -0.9% and -1.2% respectively. In contrast, the year-on-year price increase was lowest for middle-aged households (age group 45-54) at +1.1%, as they have the highest share of business wealth.  Young households (age group 25-34) also show a small increase in the price of their assets (+1.9%) due to their low property holdings.

Consumer prices were +1.6% higher at the end of the first quarter than in the same quarter of the previous year. There is no apparent effect of the monetary policy measures taken in recent quarters at the level of consumer prices. Producer prices fell by -0.2%.

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

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