ECB sees growing risk of housing bubble burst


FILE PHOTO: A view shows rue Crémieux, a street lined with colorful terraced houses, located in the 12th arrondissement of Paris, August 29, 2014. REUTERS / Charles Platiau / File Photo

FRANKFURT (Reuters) – The eurozone real estate market is heating up, increasing the chances of a correction in the residential and commercial segments, the European Central Bank said in a stability report on Wednesday.

With families accumulating savings during the pandemic and increasingly working from home, demand for real estate is on the rise, pushing house price growth to over 7%, its fastest rate since 2005.

“The risks of a price correction over the medium term have increased significantly amid rising estimates of house price overvaluations,” the ECB said in a biannual stability report.

Construction cannot meet demand and the residential market is particularly hot in countries like Germany, France and the Netherlands.

“Despite the recovery in residential construction, labor shortages, bottlenecks in the global supply chain and increases in input prices are weighing on the ability of the construction sector to expand housing supply, which puts upward pressure on house prices, ”the ECB said.

As the blue chip commercial real estate market is now recovering, the outlook is “particularly bad” for lower quality commercial real estate, as remote work, health issues and the rush to greener properties. are channeling demand into the prime segment, according to the report.

On a positive note, the ECB added that the risk of an upsurge in corporate bankruptcies, a major fear a year ago, has eased, although some government support measures have now been removed.

“On average, corporate defaults are lower than most optimistic expectations at the start of the pandemic, while insolvencies have remained around 15% below pre-pandemic levels,” the ECB said.

Report by Balazs Koranyi; Editing by Lisa Shumaker


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