German property is booming

German policymakers, ever wary of rising prices, have begun to fret that their housing market could be developing a bubble.

In 2010 and 2011, house prices rose by 2.5% and 5.5% respectively. In Berlin and Munich, apartment prices increased by around 10% last year. Sales have soared: "German apartments are getting ripped out of people's hands", says Andre Adami of BulwienGesa. Rents are buoyant, having climbed by 8.3% in Berlin over the past 12 months.

So far "house-price increases look sensible", says Rene Schultes in The Wall Street Journal. "There is an element of catch-up." House prices fell in inflation-adjusted terms between 1995 and 2009. The fundamentals support higher prices, with demand climbing as more people choose to live alone and supply struggling to catch up with this trend.

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A hallmark of a housing bubble is crazy lending, and there's no sign of that yet. Residential mortgage loans are up by just 1% a year in the past decade. "For now, rising prices in Germany are a healthy... sign."

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