German Real Estate Bubble?

A Focus article discussing real estate price hikes in Germany in recent time. In Berlin, since 2007, apartment prices rose 73%. Alone in 2012 the Bundesbank (according to the Focus article) estimates the price hike to be 5.3% but they do not see a bubble because borrowing does not spike. The DIW (again according to the article) says that the demand driving the price hikes is not generated by hikes in rent prices but by speculative expectations. It takes a high amount of effort to misread reality as badly as this article and its sources do. The core question is: where does the money come from to generate demand which drives such price hikes if not from borrowing? Two thoughts come to mind (at the Sunday breakfast table) and it takes about 15 minutes of internet search to resolve the issue. “Baby boomers are relocating their equity” is the first guess and the second guess is “capital inflows due to the crisis” (TARGET2). Here is a quick and dirty documentation of TARGET2 trends coming from here.

TARGET2 imbalancesIn June 2012 Spain (-400) and Italy (-275) appear to account for most of Germany’s +725. If this does not explain a large part of the price hikes I don’t know what would. In fact there have been press reports about this in the past. Breakfast is up so no time to research baby boomer equity shocks, but Focus: research your articles better and focus on the data more. What “experts” say is not nearly as relevant as what data says.