Bundesbank sees property market slowdown but not a correction ahead

Germany’s central financial institution is predicting a slowdown but no important correction within the nation’s property market regardless of warnings of overvaluation, in accordance with a report revealed Thursday.

Claudia Buch, vice chairman of the Bundesbank, instructed CNBC’s Joumanna Bercetche: “We do see a slowdown in the price growth for residential real estate, but it’s not that the overall dynamic has reversed.”

“So we still have overvaluations in the market,” she mentioned.

Some analysts, together with at Deutsche Bank, have forecast a sharp decline for the sector. House costs have already declined round 5% since March, in accordance with Deutsche Bank information, and they’re going to drop between 20% and 25% in complete from peak to trough, forecasts Jochen Moebert, a macroeconomic analyst on the German lender.

Buch mentioned the central financial institution’s concern was the extent to which overvaluation was being pushed by the loosening of credit score requirements by a very quick development in credit score residential mortgages.

“There we also see a slowdown,” she mentioned. “So we don’t currently think that additional measures are taken to slow down the build-up of vulnerabilities in this market segment, but we do think we need to keep monitoring the market because we know that private households are very much exposed to mortgage loans, so that’s the biggest component in private household debt.”

The German market has a excessive share of fixed-rate mortgages so households are much less weak to rising rates of interest than in another international locations, she continued.

“Of course the risk doesn’t disappear, it’s still in the system, but this exposure to interest rate risk is largely with the financial sector, the banks who’ve done that lending with regard to mortgages.”

The Bundesbank’s Financial Stability Review for 2022 highlights different points, together with deteriorating macroeconomic circumstances and the slowdown in German financial exercise, will increase in power costs and the autumn in actual disposable earnings.

It describes the German economic system as at a “turning point” following value corrections in monetary markets, which have led to write-downs on securities portfolios. It additionally cites elevated collateral necessities in futures markets and elevated dangers from company loans.

It says there was no elementary reassessment of credit score danger in German banks to date but says its monetary system is “vulnerable to adverse developments.”

“The message is very clear, we need a resilient financial system, we need to keep building up resilience over the next period of time,” Buch instructed CNBC.

Additional reporting by Hannah Ward-Glenton

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