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European Real Estate Bubble A Real Possibility - Commerzbank

Infra News - Published on Tue, 11 Jun 2019

Image Source: CNBC.com
CNBC said that Commerzbank expects that if the ECB maintains its monetary policy stance until the end of 2020, average house prices will exceed pre-crisis levels. The euro area is at risk of a new real estate bubble as a result of expansionary monetary policy from the European Central Bank. The ECB council meets on June 6, and is likely to decide on the details of the third edition of its targeted longer-term refinancing operations program, a series of Eurosystem operations that provide financing to credit institutions for periods of up to 4 years. TLTROs offer long-term funding at attractive conditions to banks in order to encourage them to lend capital to the real economy. The central bank has faced calls from some corners of the market for fresh stimulative measures to aid the anemic European economy, and the third round of TLTROs represent a continuation of its expansionary monetary course.

A note from Commerzbank senior economists Dr Ralph Solveen and Dr Jorg Kramer said “With a view to low core inflation, some policies are often passed off as a free lunch. Yet the ECB’s expansionary monetary policy has a cost and it comes in the form of higher house prices, which already appear expensive in some countries, and the threat of a property price bubble is a real possibility.”

Commerzbank highlighted that house prices have been rising rapidly in the majority of eurozone economies, including the large economies of Germany, Belgium and France. With an increase of around 4.5% in the course of 2018, Germany was slightly above average in terms of rising house prices, while Slovenia and Latvia saw double-digit rises. Portugal, the Netherlands and Luxembourg all rose at almost 10% rates.

Yet Commerzbank analysts anticipate that ECB interest rates will remain in negative territory for the foreseeable future, further heightening the threat of a real estate bubble.

The note stated “The relation between house prices and rents, a frequently used measure for the valuation of real estate, has risen by more than 10% since early 2015. This is less than 5% below its level at the beginning of 2008, when the housing market in some euro area countries had formed considerable bubbles.”

Commerzbank expects that if the ECB maintains its monetary policy stance until the end of 2020, average house prices will exceed pre-crisis levels.

Source :

Posted By : Rabi Wangkhem on Tue, 11 Jun 2019
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