FvS Wealth Price Index for Germany

Q2-2022: Trend reversal continues

At mid-year 2022, asset price inflation for private German households has weakened and is now +3.0% year-on-year. A year ago, annualized asset price inflation was still at 11.7%. In the most recent quarter, asset prices for German households stagnated (+0.0%).

The trend reversal was caused by uncertainties due to a pending economic recession, coupled with rising consumer prices and key interest rates as well as geopolitical conflicts. In the second quarter of 2022, these conditions led to significant price drops on the markets for business wealth, equities and bonds. Only the real estate prices, which have been booming for years, have not yet been halted.

Consumer prices, which are usually used to measure inflation but do not fully describe inflation, rose by +7.6% in the same period, which is the highest value in our period under review since 2005. This is the first time since 2012 that consumer price inflation has been above asset price inflation.

Producer prices increased by +33.3% year-on-year and thus currently have the highest growth rate of the three inflation measures.

The price development of real assets (real estate, business wealth, consumer durables, collectibles & speculative items) owned by private German households dominates the development of the overall index, as 75.7% of gross assets are attributable to real assets. For the aggregate of tangible assets, the change in prices compared with the middle of the previous year is positive (+4.6%), but the development within the second quarter is weak at +0.7%.

For the average German household, 20.6% of its gross assets are financial assets (savings and demand deposits, equities, bonds and other financial assets). The price of financial assets fell by -4.7% compared with the middle of the previous year. While prices for financial assets were still rising in the second half of the year, they fell within the first half of this year.

The price development of real estate held by private German households has the greatest influence on the development of the overall index, as it accounts for 63.7% of total gross assets. Over the past four quarters, real estate prices have risen by +9.5%. This is once again one of the highest price increases since the start of the time series in 2005. Within the second quarter, the price increase of +2.4% was also almost at a record level and also higher than in the first quarter (+2.1%).

The massive rise in real estate prices has come about despite the fact that conditions on the real estate market deteriorated significantly in the first half of the year, pointing to lower demand. Mortgage rates, which had remained at a historically low level since 2014, have risen to a 10-year high. As a result, demand from private households is expected to decline, as the interest burden coupled with higher consumer prices is no longer affordable for many private households. For institutional investors, too, the rise in interest rates on the capital markets in the second quarter meant that there were once again more attractive investment alternatives, which also led to a drop in demand here. In addition, the supply of real estate was increased in many parts of Germany through new construction activities, so that the excess demand could be reduced to some extent. 

Given the deterioration in the environment, the rise in prices on the real estate market can be explained by the fact that, on the one hand, real estate transactions often require a lead time of several months and there is a delay before a change in price becomes apparent. Secondly, fewer transactions have taken place, but these have then been executed at higher prices on average.

Prices for business wealth owned by private German households suffered a sharp fall and traded -22.7% lower at the half-year point than in the middle of the previous year. The fall in prices was largely attributable to the first and second quarters of 2022, when prices for business wealth and 13.2% (Q1) and -10.9% (Q2) respectively had fallen. The reason for the decline in business asset prices in the first half of the year is uncertainty about the medium-term development of the German and European economies. The uncertainties arise from rising energy and producer prices, a shortage of skilled labor, bottlenecks in global supply chains, and rising consumer prices. In addition, the armed conflict in Ukraine has exacerbated the situation. In addition to the aforementioned operational risks, the increase in key interest rates by the European Central Bank (ECB) and the resulting rise in the cost of business loans have created additional financial risks, which have also depressed business prices. Although the economic environment for privately held companies deteriorated in the first half of the year, demand for privately traded operating assets has been high as private equity funds, among others, have had record amounts of uninvested capital . The high demand has slightly supported falling prices for private operating assets.

Prices for consumer durables again showed a record increase. Compared with the middle of the previous year, consumer durables became +8.1% more expensive. The majority of the price increase over the 12-month period occurred in the first half of 2022. In particular, prices for consumer durables, as well as furniture, lighting, and other household appliances, rose sharply. A price increase of almost nine percent was also measured in the category "other durables for leisure and culture." On the one hand, the price increase arises from high demand meeting supply curtailed by problems in global supply chains. On the other hand, production costs have also risen due to energy and producer prices, which have made long-term consumer goods even more expensive.

Prices of collectibles and speculative items have seen the largest price increases within real assets. At mid-year, collectibles and speculative items traded at +13.8% more expensive than at mid-year a year earlier. Contrary to the year-on-year trend, price growth in the second quarter was only slight. Although historic automobiles increased by +12.5% over the past year, the increase in the second quarter was only +0.4%. While historic automobiles of the Porsche and Ferrari brands recently suffered a price reduction, prices for historic automobiles of the Mercedes Benz brand increased massively in price within the second quarter. Precious wines traded on secondary markets increased in price by +22.4%. Here too, despite the high annual value, the price change in the second quarter of 2022 was small at -0.5%. Only from isolated regions of origin (Burgundy and Rhône) were precious wines able to end the quarter with significant price increases. Prices for art objects increased by +13.4% year-on-year, but only one and a half percentage points of this were attributable to the second quarter. The year-on-year price increase is partly due to the fact that a large number of masterpieces were sold at major auction houses. Jewelry made of precious metals increased in price by +6.9% compared with the prior-year quarter. More than half of this increase (+3.6%) is attributable to the most recent quarter. This was due to higher prices for raw materials.

The price discount hit the bonds held by private German households particularly hard. At mid-year, bonds were 13.3% cheaper than at mid-year a year earlier. This is by far the highest measured price decline for bonds since the start of the time series in 2005. Within the past four quarters, the biggest price decline occurred in the most recent, second quarter of 2022, at -8.7%. Due to emerging consumer price inflation worldwide and the resulting increase in key interest rates by various central banks, there was a sell-off in fixed-income securities, as their yield to maturity was often below the expected consumer price inflation. This led to falling prices on the global bond markets. The prices of bonds from issuers in the emerging markets suffered most, with credit ratings also deteriorating sharply due to the uncertain economic situation. Prices of bonds from German and European issuers were also under pressure, trading nine percent lower than in the middle of the previous year. By contrast, bonds from the Pacific region enjoyed the smallest price discount, trading just +2.4% cheaper.

Prices for the equity assets of private German households also suffered substantial price discounts over the past twelve months. At mid-year, prices for the equity assets of private German households were 11.2% lower than at mid-year a year earlier. As recently as the third and fourth quarters of 2021, share prices still recorded a slight increase of +1.8% in each case. At the beginning of the year, however, there were increasing concerns about rising consumer price inflation, expected increases in key interest rates, the threat of recession and the outbreak of war between Ukraine and Russia. As a result, prices of stocks fell by -8.2% in the first quarter of 2022. In the second quarter, there was no improvement in the general conditions; rather, the expectations of the first quarter were realized, so that the prices of shares fell by an additional -6.6%. Cumulatively, this results in the described price decline of -11.2% over the last twelve months.

The majority of equities and bonds held by private German households do not represent a direct investment, but are part of the mutual funds, capital-forming life insurance policies and private and company pension products held by households. As a result, there was also a significant fall in the price of these assets.

The price of other financial assets, which is measured by the prices of gold and commodities traded on the stock exchange, showed the highest 12-month growth rate of all categories at +34.6%. Both commodity prices (+69.9%) and gold prices (+13.9%) increased significantly over the period under review. The dramatic increase in commodity prices did not occur in the most recent quarter (+8.4%), but in the preceding quarters. The development of the gold price also diverges in the most recent quarter from the price development of the preceding quarters and shows a slight price decline of -1.9%.

By definition, the prices of savings and demand deposits remain unchanged.

In the cross-section of the net wealth of private German households, asset price inflation turns out to be divergent. Although inflation for the bulk of households ranges between +4.6% and +6.3%, the inflation rate is below the interval for both lower middle class households and the wealthiest households. Since lower-middle class households have the highest proportion of savings, which do not show any price change, the price change for them is low at +2.8%. At +0.9%, the price change for the assets of the wealthiest households is even lower. The reason for this is the high proportion of business wealth, which suffered a significant price discount.

In the cross-section of household age (measured by the age of the household reference person), asset price inflation also turns out divergent. As the age of households rises, so does the rate of increase in private wealth prices. For the youngest households (25 to 34 years old), asset price inflation is +2.3%, while for the oldest households (75 years and older) it is +5.9%. The reason for this is the relative prevalence of real estate assets, which also rises as households get older. Middle-aged households (45-54 years) are an exception, however, as they have the largest proportion of business wealth, which pushes down the overall price trend. The price change for this household group is only +0.4%.

The rally in producer prices continued in the second quarter, with the producer price index for industrial intermediate products +33.3% higher year-on-year at mid-year. The main reason for the renewed price increase in the second quarter was energy prices. Prices for intermediate goods and consumer durables also increased significantly.

Consumer price inflation, measured by the consumer price index, was +7.6% at mid-year. At the end of the second quarter, there was a slight decline in the rate of price increases, partly due to the dampening effect of the 9-euro ticket and the fuel discount.

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