FvS Wealth Price Index for Germany

Q1-2023: Third price decline in a row

For the third time in a row, asset prices of German households fell in a 12-month comparison. At the end of the first quarter, asset prices were -3.4% lower than in the prior-year quarter. Both real and financial assets fell in price. This was the biggest price correction since the financial crisis in 2009.

The sharp rise in consumer price inflation put an end to the rally on the asset markets. Capital markets and central banks responded to consumer price inflation with rising interest rates, which with some delay caused prices for the most important asset of private German households, real estate, to fall. In addition, the prices of various assets such as business wealth and equities suffered last year from fears of an imminent deep recession, but so far these fears have not materialized. In the two most recent quarters, the absence of a recession led to a slight recovery in the prices of these goods.

What is the FvS Wealth Price Index?

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.

Asset prices: Real and financial assets become cheaper

Real assets (real estate, business wealth, consumer durables and collectibles & speculative goods) owned by German households were -3.5% cheaper at the end of the third quarter than in the prior-year quarter. Of this, a price decline of -1.3 percentage points is attributable to the first quarter of 2023.

At the end of the first quarter, prices for the financial assets of German households (savings and demand deposits, equities, bonds and other financial assets) were -2.8% lower than at the end of the prior-year quarter. While prices for financial assets declined in the first two quarters covered, they increasingly recovered in the last two quarters.

Real assets: Real estate prices fall

At the end of the first quarter of 2023, prices for the real estate of private German households were 2.5% lower than in the same quarter of the previous year. This is the highest measured price decline since the index was established. The price correction, which already began in mid-2022, is continuing and has recently gained momentum. The first quarter of this year alone accounted for a price drop of -2.1%. The reason for the price correction is the rise in mortgage rates, which have significantly increased the long-term costs of purchasing a property. However, for most real estate buyers, the cost increase on the financing side is still far greater than the price correction of recent quarters. Added to this are increased costs due to the need for energy-efficient refurbishment. As a result, demand from private and institutional buyers weakened. Low unemployment contributed to the fact that no significantly increased number of property owners came under pressure to sell. As a result, there were fewer transactions carried out at high prices.

In the first quarter of 2023, the price recovery for business wealth owned by private German households continued. However, the price slump of 2022 still weighed so heavily that, despite a slight recovery compared with the prior-year quarter, business wealth still traded -12.4% cheaper. While last year's price decline was due to increased consumer price inflation, geopolitical conflicts and high energy prices, prices for operating assets stabilized again as concerns about a deep recession did not materialize.

The price rally for consumer durables, which are owned by private German households, weakened significantly. Whereas last year supply chain problems and high prices for intermediate products and energy costs were still driving prices up, the problem situation is increasingly improving. At the end of the first quarter, prices for consumer durables were +3.5% higher than a year earlier.

Due to uncertainties about the future development of consumer price inflation and the capital markets, collectible & speculative goods have increasingly become the focus of investors. At +10.7% compared with the prior-year quarter, they recorded the highest price increase of all asset classes. Historic automobiles (+9.6%) and art objects (+29.8%) in particular increased significantly in price.

Financial assets: High price decline for bonds

Bond securities show the highest price decline both within financial assets and across all assets. Compared with the same quarter a year ago, bonds have become -13.1% cheaper. Prices fell in all four quarters. The price drop was particularly pronounced for bonds with issuers from the Euro area, followed by issuers from the emerging markets and the USA. For bonds from the Pacific region, the price drop was relatively small at -2.1%, as prices there recovered slightly in the most recent quarter.

At 0.3%, prices for the equities held by private German households were only slightly lower than a year earlier. Following the price slump on the stock markets last year, a recovery set in at the end of the year which lasted until the end of the first quarter and lifted prices back to the prior-year level. The reason for the price drop was fears of a significant recession due to the rise in consumer prices. As the fears have not yet materialized, prices have recovered. While shares from Germany and Europe were even slightly more expensive than a year ago, prices for shares from North America, the Pacific region and the emerging markets were still lower than a year earlier.

The price of other financial assets, which is measured by the prices of gold and commodities traded on the stock exchange, showed a slight price decline of -3.9%. The reason for this is that commodity prices have moved away again significantly from their record high at the beginning of 2022.

The prices for savings and demand deposits remain unchanged by definition.

By net wealth: Highest price decline among wealthiest households

A look at the cross-section of the net wealth of private German households shows an extremely homogeneous picture. With the exception of the wealthiest households, asset price inflation lies within the narrow range of -0.4% to +0.7%. For the wealthiest households, the price decline is 5.1%. Since entrepreneurial households are more common among the wealthiest households, they also have the largest share of business wealth, which has led to a price decline in their total wealth.

By household age: Price erosion for middle-aged households due to business wealth

In the cross-section of household ages (measured by the age of the household's reference person), asset price inflation ranges from -4.3% to -2.4% over the period of the last four quarters. Since middle-aged households (45-54 years old) have the highest share of business wealth, they have the highest price decline. The lowest price erosion can be found among pensioner households, which have the lowest share of business wealth in the age cross-section.

Comparison with producer and consumer prices: Consumer price inflation remains high

Consumer prices, measured by the consumer price index of the Federal Statistical Office, rose by +9.7 % over the past year. An increase of +1.8 % is attributable to the most recent quarter. Producer prices increased by +28.0 % over the past year, although they fell by -3.1 % in the most recent quarter after peaking in the third quarter.

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