Exploring German Housing Price Determinants: A Dual Approach Through Market Analysis and Hedonic Pricing Models

Abstract

This work investigates the determinants of housing prices in the German real estate market by employing a dual methodology, combining market analyses and hedonic pricing models. The study aims to provide a comprehensive understanding of the factors influencing housing prices and sheds light on the role of the European Central Bank's (ECB) interest rate policies in shaping the dynamics of the German housing market. The first aspect of the research involves a detailed market analysis, examining macroeconomic trends, regional variations, and demand supply dynamics within the German housing market. By employing cross-sectional data, the study identifies key market indicators and assesses their impact on housing prices. In the second part of the analysis, the study employs hedonic pricing models to delve deeper into the intrinsic determinants of housing prices. By considering a diverse set of housing attributes, such as location, size, and amenities, the hedonic pricing models aim to isolate the individual contributions of these factors to overall property values. A significant focus of the research is on the ECB's interest rate policies and their influence on the German housing market. The study explores how accommodative monetary policies, particularly during the recent years leading up to the COVID-19 pandemic, have played a pivotal role in facilitating house price growth. Special emphasis is given to the period of zero interest rates during the pandemic, analysing the unprecedented surge in housing prices during this time. The findings of this research contribute to the existing literature on housing market dynamics, providing valuable insights for policymakers, real estate professionals, and investors. Understanding the interplay between market forces, intrinsic property characteristics, and central bank policies is crucial for developing informed strategies to navigate the complexities of the German housing market.