"Finally in discussions with German colleagues and friends who are thinking of buying houses, we're all watching interest rates which already have started to drop." (Martin)
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Greetings JM and Martin and thank you both for your insight,

Martin, importantly you brought out the question of the interest rate reaction to the present crisis, and this is indeed an essential factor in the property equation. Yet Trichet in his recent position has made it clear that he wants to HOLD interest rates at their present level, which suggests that he places the inflation danger in the Eurozone ahead of the recession danger. I wasn't aware that bank rates were dropping here in Germany (which is how I interpret your above post) but Trichet's present position will likely put a cap on any further rate cuts - unless of course the recession scenario is borne out and he is forced to follow Bernanke's lead and cut rates.

A Eurozone rate-cut scenario would theoretically be doubly supportive of real estate because it would encourage domestic purchases by making mortages cheaper, and would further encourage foreign (non Euro) buyers by strenthening their own currencies against the euro. (As a general rule, high interest rates strengthen currencies, and low rates weaken them.)

If rate cuts do take place and if this brings stronger inflation, then this too should support real estate pricing because the inflation factor generally gets priced into house prices.

Neustria