Is There Any Room to Negotiate on the Price? Heterogeneity in Seller Behavior Following the Interest Rate Reversal

• The rise in interest rates since early 2022 has affected the apartment market primarily through the number of sales. Transactions declined by just over 30 percent, while prices fell by only around 15 percent.
• Behind this aggregate pattern lie markedly different adjustment dynamics. In the highest-quality segment, the number of transactions fell by almost half, while prices declined by only around 9 percent. In the lowest-quality segment, the decline in transactions was considerably smaller, whereas the price decline was substantially larger.
• This opposing pattern cannot be explained by differences in the size of the demand shock alone and points to differences in the supply response. Listing data support this interpretation: Sellers of high-quality properties adjust their asking prices less frequently, without the properties remaining on the market for longer. At the same time, the data suggest that particularly many listings in this segment end without a corresponding sale.
• Price indices therefore reflect only a selective set of successfully completed transactions, particularly in the highest-quality segment. The adjustment there is less visible in prices than in market liquidity. In the event of a recovery, the number of transactions in the high-quality segment should therefore increase before prices respond more strongly.

Kiel Institute Experts