FvS Wealth Price Index for Germany

Q3-2021: Inflation on all fronts

At the end of the third quarter of 2021, prices for assets owned by German households had risen by +12.1% compared with the same quarter a year earlier. This is the highest price increase since the start of the time series in 2005, exceeding the previous record from the first quarter of 2021 by 0.2 percentage points.

As in the previous quarters, several developments favored the high inflation rate. Both a recovery in the real economy, monetary and fiscal policy measures, and the threat of the currency losing purchasing power due to rising consumer prices have caused prices on asset markets to rise. Furthermore, there is also a base effect this quarter, as asset prices were low in the third quarter of 2020 due to the corona pandemic and its containment 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. Over the past four quarters, the price of real assets has risen by a record +13.5%.

The price of financial assets held by German households (savings deposits, shares, bonds, other financial assets) increased by +5.5% compared with the prior-year quarter. Compared with the last two quarters, financial asset price growth has slowed. Moreover, annual growth rates have been permanently lower than the growth rates of real asset prices since 2013.

Prices for the real estate of private German households rose by +10.5% year-on-year at the end of the third quarter. This is the second record figure in succession. Residential real estate in particular, which accounts for the largest share of German households' real estate assets, rose sharply by +12.5%. According to vdpResearch, this is due to surplus demand for residential property, as the value of one's own home as a center of life has risen sharply since the Corona pandemic. Additional demand is coming from German as well as foreign investors, who perceive German residential real estate, for example in the form of multi-family houses, as an attractive investment alternative. Supply, on the other hand, increased only slowly. In addition, financing conditions remained historically favorable due to the expansionary monetary policy. Prices for commercial real estate, which accounts for only a small share of private German household assets, fell by 0.9% in price terms. Prices for retail properties declined.

Prices for business wealth owned by German households again rose substantially, by +34.8%. The sharp rise is attributable to a recovery in the real economy in the third quarter and partly to a base effect. The price development of private operating assets is captured via the prices of small and medium-sized enterprises listed on the German share exchange.

Prices for consumer durables increased by +5.1%, which is the highest value since the index was launched. Among consumer durables, prices for used vehicles and other durables for recreation and culture rose the most, +6.4%. Furniture, lighting, appliances and household accessories, and audio, photographic and information equipment rose +3.5% in price.

Collectibles and speculative items increased in price by +13.0% compared with the prior-year quarter. As in the previous quarter, the prices of precious wines (+20.4%) and historic automobiles (+17.2%) increased in particular. Especially by wealthy households, these assets are increasingly perceived as inflation protection, so that demand has increased as a result.

Shares are +22.6% more expensive than a year ago, but only +1.8% more expensive than in the previous quarter. An important contribution to the price increase comes from the global economic recovery that started in 2021, which is additionally supported by the ongoing fiscal and monetary policy measures. As in the previous quarter, part of the price growth is attributable to low prices in the third quarter of 2020. At the end of September 2020, share prices ranked slightly below the level of 2017.

Rising expectations for consumer prices further depressed the prices for the bonds held by German households, as many institutional investors sold low-yielding fixed-income securities. At the end of the third quarter, the price of bonds was -1.8% lower than a year earlier.

The price of other financial assets is measured via the prices of gold and commodities and increased by +9.0% compared with the prior-year quarter. The price of gold in the third quarter of 2021 was 7.1% lower than in the year-earlier quarter, with the largest share of the price decline attributable to the fourth quarter of 2020 and the first quarter of 2021. While uncertainty was high in the first quarters of the pandemic and gold was seen as a safe alternative, demand for gold has declined significantly within the last few quarters. Commodity prices are +50.8% above the same quarter last year. While prices were low in the prior-year quarter due to low demand from the real economy, they picked up significantly from the fourth quarter of 2020. Supply bottlenecks and delays in supply chains caused prices to rise dramatically in the course of 2021.

Rising expectations for consumer prices further depressed the prices for the bonds held by German households, as many institutional investors sold low-yielding fixed-income securities. At the end of the third quarter, the price of bonds was -1.8% lower than a year earlier.

By definition, the prices for savings deposits remain unchanged.

The cross-section of private German household wealth shows that wealthy households in particular are benefiting from the real economic recovery and monetary and fiscal policy. For these households, the year-on-year change in the price of their assets amounts to +14.4%. Year-on-year asset price inflation for lower middle-class households was +5.8%, for the poorest households +8.7% and for the upper middle class +9.7%. The reason for this is the different composition of household wealth. While savings account for the largest share of the wealth of the lower middle class, the wealthiest households hold real estate, business wealth and shares more frequently and to a greater extent, all of which have increased significantly in price.

In the cross-section of household ages (measured by the age of the household's reference person), asset prices of middle-aged households (45-54 years) increased the most (+14.3%). Business wealth makes a crucial difference here. Retirement-age households rarely have business wealth and therefore show the smallest price increase, +10.2%. The youngest households (25-34 years), together with those aged 55-64, enjoyed the second-highest price increase among the age groups, at +11.5%.

Against a backdrop of supply bottlenecks and rising energy and raw material prices, producer prices increased by +12.2% compared with the prior-year quarter. For the first time since 2012, producer prices rose more strongly than asset prices (+12.1%) and for the first time both are increasing at growth rates of over 10%.

Consumer prices rose by a record +3.8% compared with the prior-year quarter. The German Federal Statistical Office attributes the increase in part to the base effect due to the reduction in value-added tax in July 2020. In addition, sharply rising energy prices are contributing to consumer price inflation. Until the end of the third quarter, price increases due to supply bottlenecks had mainly been reflected in producer prices and only to a lesser extent in consumer prices.

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