Bubbles are notoriously difficult to diagnose as they happen, and not all economists agree that Germany is entering one. But danger signs are there, many say. With rock-bottom interest rates, low unemployment and new money flowing in from foreign investors, many analysts say, Germany may experience an unpleasant pop in just a few years if prices keep rising.
The consequences could be wide-reaching, since significant portions of the 17-nation euro zone’s crisis response plans depend on Germany’s good economic health. If the country’s finances slip or if German voters start to feel more vulnerable, Germany’s economic ability and political will to foot the cost of the bailouts may fade, analysts say.
“If we learn from the U.S. experience, we should be cautious, even if we up to now aren’t in a bubble,” said Kai Carstensen, an economist at the Ifo Institute in Munich. “When I talk to politicians, they always say, ‘Well, it’s different.’ That’s what you always hear: ‘This time is different.’ ”
“We are shielded against a bubble better than the U.S. or Ireland,” Carstensen added. “But it’s not impossible.”
Germany’s central bank has declared itself on guard against prices that rose about 5.5 percent last year nationwide. That rate is “something that we will need to watch,” German Bundesbank President Jens Weidmann said in March.
Prices since then have only gone up. In fashionable Berlin, some analysts say, prices have spiked 20 percent in the past year, though others say the increases have been more modest. “We face the danger of a price bubble,” said Steffen Sebastian, head of the Institute for Real Estate Finance at the University of Regensburg. Prices are going up because of “fear of inflation and fear of currency reform,” he said. “You could also call it a panic. People are buying at tremendous prices.”
Brokers say much of the interest has come from foreign buyers seeking to protect their money from Europe’s turmoil by investing it inside what have been the euro zone’s safest borders.
Germans are also more interested than ever in buying property. Only 43.2 percent of Germans own their homes, according to government statistics. But unemployment rates are the lowest in decades, and low interest rates are making it cheap to take out home loans and unattractive to park cash in savings accounts.
Germany’s central bank reported in June that construction permits for new housing from September 2011 to March 2012 were up 9 percent from the same span a year earlier. Much of the growth has been in apartment buildings, an indicator of investment activity, not just in the purchase of homes by buyers who intend to live in them, the bank said.