Germany’s central bank is predicting a slowdown but no significant correction within the country’s property market despite warnings of overvaluation, in line with a report published Thursday.
Claudia Buch, vp of the Bundesbank, told CNBC’s Joumanna Bercetche: “We do see a slowdown in the worth growth for residential real estate, nevertheless it’s not that the general dynamic has reversed.”
“So we still have overvaluations out there,” she said.
The report notes the strong rise in German residential property prices since 2010 and says overvaluations have increased, ranging between 15% and 40% in German cities and towns and the country as an entire in 2021.
Some analysts, including at Deutsche Bank, have forecast a pointy decline for the sector. House prices have already declined around 5% since March, in line with Deutsche Bank data, and they’ll drop between 20% and 25% in total from peak to trough, forecasts Jochen Moebert, a macroeconomic analyst on the German lender.
Buch said the central bank’s concern was the extent to which overvaluation was being driven by the loosening of credit standards by a really fast growth in credit residential mortgages.
“There we also see a slowdown,” she said. “So we do not currently think that additional measures are taken to decelerate the build-up of vulnerabilities on this market segment, but we do think we’d like to maintain monitoring the market because we all know that non-public households are very much exposed to mortgage loans, in order that’s the largest component in private household debt.”
The German market has a high share of fixed-rate mortgages so households are less vulnerable to rising rates of interest than in another countries, she continued.
“After all the chance doesn’t disappear, it’s still within the system, but this exposure to rate of interest risk is essentially with the financial sector, the banks who’ve done that lending with regard to mortgages.”
The Bundesbank’s Financial Stability Review for 2022 highlights other issues, including deteriorating macroeconomic conditions and the slowdown in German economic activity, increases in energy prices and the autumn in real disposable income.
It describes the German economy as at a “turning point” following price corrections in financial markets, which have led to write-downs on securities portfolios. It also cites increased collateral requirements in futures markets and increased risks from corporate loans.
It says there was no fundamental reassessment of credit risk in German banks to date but says its economic system is “vulnerable to opposed developments.”
“The message could be very clear, we’d like a resilient economic system, we’d like to maintain build up resilience over the following time period,” Buch told CNBC.
Additional reporting by Hannah Ward-Glenton
