Germany’s central bank is forecasting a slowdown in the country’s property market despite warnings of overvaluation, but without a significant correction, according to a report released Thursday.
Federal Bank Deputy Governor Claudia Buch told CNBC’s Joumanna Bercetche:
“So there’s still an overvaluation in the market,” she said.
The report notes that Germany’s house prices rose significantly between 2010 and mid-2022, with a range of 15% to 40% in both German cities and towns and across the country in 2021. states that market overvaluation has increased.
Some analysts, including Deutsche Bank, are predicting a sharp decline in the sector. House prices have already fallen about 5% since March, according to Deutsche Bank data, with a total decline of 20% to 25% from peak to trough, said Jochen Mobert, a macroeconomic analyst at the German bank. I am predicting.
Boech said the central bank’s concern is to what extent the overvaluation is being driven by the loosening of credit standards due to rapid growth in credit mortgages.
“We’re seeing a slowdown there as well,” she said. “So while we do not believe that additional steps are currently being taken to slow the build-up of vulnerability in this market segment, we do know that private households are highly exposed to mortgages. We believe we need to continue to monitor the market because it’s a loan, so it’s the largest component of personal household debt.”
The German market has a higher share of fixed-rate mortgages, so households are less susceptible to rising interest rates than some other countries, she continued.
“Of course the risk has not disappeared, it is still in the system, but this exposure to interest rate risk is mainly in the financial sector, the banks that have made it in terms of mortgages.”
Fed’s financial stability review The outlook for 2022 highlights other issues, including worsening macroeconomic conditions and slower economic activity in Germany, higher energy prices and lower real disposable incomes.
Germany’s economy is at a “tipping point” following a price correction in financial markets that led to write-downs of securities portfolios. It also cites increased collateral requirements in the futures market and increased risk from corporate loans.
It said there had been no fundamental reassessment of credit risk in German banks so far, but said its financial system was “vulnerable to adverse developments”.
“The message is very clear: we need a resilient financial system and we need to continue to build resilience over the next period,” Buch told CNBC.
addition Reported by Hannah Ward Glenton