Guardiola takes charge of Bayern Munich at the end of the season despite heavy interest from the Premier League.
And Ballack, who played for both Munich and Chelsea, said: "If you want to work as a coach for longer term you need consistency, trust in the club and also the environment around the club.
"Maybe that is a point why he didn't sign it. But it is also a big challenge as a coach. It's a fantastic signing for Bayern and for Pep Guardiola as well.
"Nobody in Germany expected him to sign. It shows the Bundesliga has grown a lot in the last few years and his decision looks like it's not all about money, he is a coach with a philosophy.
"He needs a good environment and will find this in Munich. There is a good atmosphere, that was a big reason to sign."