Frankfurt The German savings banks are concerned that the important real estate financing business will run significantly worse in the long run. Due to the sharp rise in interest rates, the overall demand for credit collapsed noticeably.
The downward momentum continued in the fourth quarter and savings banks fear that demand for loans will continue to decline. This is shown by the S financial climate index, which has been collected since mid-2020, in the fourth quarter.
The Deka-S financial climate is a measure of the current situation in the German economy and on the financial markets from the point of view of the regional credit institutions in the savings banks finance group. It is a sentiment index that is based on a quarterly survey of the board members of the German savings banks and that is published regularly by the Handelsblatt.
The most important reason for the pessimism in terms of mortgage lending: Customers have become significantly more cautious when it comes to building and buying private homes.
“Demand has fallen sharply, the rise in interest rates and the continued high purchase prices make buying real estate unattractive or even unattainable for many,” write the experts at Deka, the securities service provider for the savings banks.
Cautious real estate buyers
The downturn is still partly due to caution and uncertainty about the further development of interest rates and purchase prices. But even if this caution were to ease again in the coming year and the number of transactions should increase again, according to the Sparkassen managers surveyed, “due to the deteriorated conditions, the level of home purchases and construction will be significantly lower for a long time than in the past years”.
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In a recently published study, the consultants at EY also assume that fewer consumers will take out real estate financing in 2023. The combination of rising interest rates and high energy costs is an extreme burden for many home buyers.
In October, the volume of new real estate loans in Germany fell to 14.9 billion euros – the lowest level in eight years. Compared to the same period last year, the volume has shrunk by 34 percent, as figures from the Bundesbank show.
According to the S financial climate, not only the demand for loans, but also the supply of loans fell slightly. However, the supply conditions are still in positive territory, in which the savings bank managers continue to assess the willingness to lend as above average.
The overall credit climate resulting from credit supply and demand clouded over slightly, but remained at a “high level given the macroeconomic circumstances”. Because of the higher interest rates, the savings banks would like to grant more loans to regional companies overall. This is also due to the expectation that the institutes expect further increases in key interest rates and thus money and capital market interest rates in the medium term.
No financial stress for companies
The survey shows that the expected recession in Germany has not yet brought companies under financial stress. A strong increase in the use of credit lines can only be observed at four percent of the savings banks.
The chances increase that this stress can also be avoided in the new year. After three noticeable declines, the S financial climate as a whole only eased slightly at the end of the year. Stabilization is in sight, even if the index fell to 58.1 points in the fourth quarter, the lowest value in its short history. This was supported by the expectation of a less restrictive monetary policy and the positive effect of government stabilization measures.
The economic climate has not yet turned for the better, but the rate of decline has already slowed noticeably in the last two surveys. So far, the German economy has proven to be unexpectedly resilient despite the energy crisis and fears of recession.
This was evident, for example, in the unexpectedly strong third quarter, which, contrary to general expectations, did not result in a contraction, but rather a solid increase in gross domestic product of 0.4 percent compared to April to June.
Turnaround in economic expectations
In the most recent survey, the savings bank managers once again rated the current situation worse, but there has already been a trend reversal in expectations. Conclusion: The danger of a recession still exists. However, the economic slump will be much less severe than feared recently.
In the opinion of the savings bank managers, this shows a reassessment of the economic consequences of the Ukraine war. The federal government’s hands-on gas procurement policy and the support of western partner countries would have made it possible to fill the gas storage tanks faster and more intensively than in normal times.
This means that Germany is starting the difficult winter from a better than expected starting position. “The economic climate towards the end of the year remains gloomy, but the crash has been halted. In particular, the situation of the companies appears to be tolerable, partly due to the government countermeasures,” says Reinhold Rickes, chief economist of the German Savings Banks and Giro Association.
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