The European Central Bank predicts a fall in the value of real estate in the EU
The European Central Bank (ECB) estimates that the revalued real estate market in EU states could collapse if rising mortgage rates outpace inflation. This will lead to debt bubbles in a number of countries.
The ECB also warns of further asset value collapse. This can happen if the economy in the EU states deteriorates due to the special operation in Ukraine and if inflation rates are higher than originally forecast.
Key regulator forecasts
The ECB, which plans to raise its interest rate in July for the first time in the last 10 years, estimates that private homes in the EU countries are about 15% more expensive than their real price, and in a number of states, by even 60%, given the relationship between the cost of the facilities and the income of the population.
The regulator predicts a fall in real estate prices in a range from 0.83 to 1.17%. This will occur after each 10-basis inflation-adjusted increase in mortgage rates.
In its report, published biyearly, the ECB predicts that a sharp increase in real interest rates will change property prices in the near future. At the same time, according to the regulator, the current low level of interest rates is likely to lead to a significant adjustment in the cost of housing.
The situation in some selected eurozone countries
Among EU countries, the most significant increase in housing prices and mortgages occurred in Slovakia, Lithuania and Estonia. The most significant household debt to GDP was recorded in the Netherlands, Greece and Cyprus.
In its report, the ECB called once again for certain restrictions: banks were instructed to hold more capital to protect property. At the same time, the regulator warns that, before taking any action, every variable must be carefully weighed, taking into account the existing geopolitical risks associated with the situation in Ukraine.