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The European Central Bank (ECB) said that the overvalued housing market in the Eurozone could "sink" if mortgage rates rise faster than inflation, which will expose debt bubbles in some countries.
In its Financial Stability Review, the regulator also warned of a further fall in asset prices if the economic outlook worsens due to the military conflict in Ukraine or if inflation turns out to be higher than expected.
Details. The ECB is going to raise the main interest rate in July for the first time in a decade. According to the experts, houses in the EU are almost 15% more expensive on average (up to 60% in some countries), based on the price-income ratio.
The ECB warned that house prices could fall from 0.83% to 1.17% with each increase in mortgage rates by 10 basis points after adjusting for inflation.
Quote. "A sharp rise in real interest rates may cause a correction in housing prices in the near term, while the current low level of interest rates makes a significant change in housing prices more likely," the ECB representative has said in a biannual report.
Countries. Slovakia, Estonia, and Lithuania showed the fastest growth in prices for both residential real estate and mortgage lending. The largest household debt concerning GDP is marked in the Netherlands, Cyprus, and Greece.
Decision. The ECB repeated its call for restrictions, such as telling banks to hold more capital to protect their property, but warned that any action should be weighed against the geopolitical risks associated with the Russian-Ukrainian conflict.
Aslo read:
How the Netherlands Try to Save Real Estate Market
The Demand for Cypriot Real Estate is Growing
Greece is Going to Rase Property Taxes
Source: Reuters
