The German housing construction sector is showing signs of a noticeable improvement in sentiment, according to the latest data released this week. The Ifo Business Climate Index for housing construction rose from -31.4 to -25.2 points in June, marking the highest level since September 2022.
This represents a shift away from pervasive pessimism, with companies revising upward their expectations and reporting a marginally more positive assessment of their current situation. “Companies in housing construction still harbor cautious hope” stated Klaus Wohlrabe, head of Ifo surveys, emphasizing that while the mood is improving, a return to normalcy remains a long road.
While order backlogs continue to be a concern, initial indicators suggest a possible easing of pressure. The proportion of firms reporting order shortages decreased from 51.0% to 47.9%, a considerable drop from a prior period where this figure consistently remained above 50% for over a year and a half. Challenges persist, however, as project cancellations remain a factor, with 9.0% of companies reporting cancelled projects in June, slightly up from 8.6% in May.
Wohlrabe cautioned that while the trajectory is encouraging, the sector requires more than just positive signals. “The direction is right, but housing construction needs more than announcements”. He added that a sustained recovery can only be assured if significant acceleration in the housing construction sector materializes. Moreover, room for improvement remains regarding financing costs for housing, particularly in the wake of recent interest rate adjustments.
