FvS Wealth Price Index for Germany

Q1-2019: Inflation picks up after falling prices

At the end of the first quarter of 2019, prices for assets held by German households had risen by 3.1% year-on-year. The decline in prices at the end of 2018 was offset by a recovery in spring 2019. Real estate prices rose most sharply year-on-year, while prices for business wealth fell most sharply.

At the end of the first quarter of 2019, the price of assets held by German households had risen by +3.1% year-on-year. The decline in prices in the fourth quarter of 2018 was offset by price hikes in the first quarter of 2019. In combination with preceding quarter, asset prices rose again year-on-year.

The movement in the overall index was driven by the price of real estate, which rose by 4.0% year-on-year. Financial assets, on the other hand, are experiencing their fifth consecutive price decline and are 0.2 % cheaper year-on-year.

Within real assets, the development was driven by the continued rise in real estate prices and declining prices for business wealth. At +7.0%, real estate again became considerably more expensive year-on-year, albeit not quite as strongly as in previous quarters. Although prices for business wealth recovered significantly in the first quarter after falling sharply in the winter of 2018, they are still 11.2% lower than in the first quarter of 2018. Durable consumer goods became 1.0 % more expensive, and collectibles and speculative items now fell in price for the sixth time in a row (-1.6 %). Within the collectors' and speculative items, prices for art objects have fallen sharply.

Within financial assets, there are only comparatively minor price movements. In comparison with the first quarter of 2018, shares are now 1.9 % cheaper. The recovery of the stock market in spring 2019 did not fully compensate for the falling prices at the end of 2018. Bonds rose by 0.5 % compared with the same quarter of the previous year. Previously, the price of bonds fell for eight consecutive quarters. Other financial assets (measured by gold and commodity prices) showed the largest price increase, rising by 5.4 %. The price of gold in particular was responsible for the high price increase, while commodity prices rose only moderately. By definition, the price of saving deposits remains unchanged.

In the cross-section of net wealth, households with a high proportion of real estate show the highest price growth rates for their wealth. This is particularly the case in the upper middle class, whose inflation rate is 4.9%. Since the wealthiest households have not only a high proportion of real estate but also high business wealth, the price of their assets rises by only 2.1%. This is only marginally higher than the price increase recorded for the wealth of households in the lower middle class (+1.7%). However, the reasons for this are a high proportion of savings deposits and low real estate ownership. The increasing divergence in the cross-section of net wealth that has emerged in recent years has lost momentum.

In the cross section of household age (measured by the age of the reference person of the household), inflation rates vary between 1.8% and 4.6%. Middle-aged households (45-54 years) have the lowest price growth rates because they have the highest proportion of business wealth. Among the oldest households (75+ years), asset prices are rising most sharply (+4.6%) due to the highest share of real estate in total assets. In the other household categories, asset price inflation rises from +2.5% (25-34 years) to +4.3% (65-74 years) with increasing age due to the rising proportion of real estate.

For the first time in a long while, consumer price inflation is greater than asset price inflation. At 2.2% year-on-year, consumer price inflation has picked up considerably. Looking at the development of asset and consumer prices in a long-term comparison, asset prices have risen much more sharply. Since the last local peak in asset prices in mid-2007, asset prices have risen by 36.4%. During the same period, consumer prices rose by 17.3%.

Consumer price inflation, at 1.4%, is on its long-term average, but is only half as high as asset price inflation. Producer price inflation, at +2.5%, is between the two other inflation measures.

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 Thomson Reuters Continuous 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