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.