ECB sees rising risk that housing bubble will burst

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FILE PHOTO: A view of a street lined with colorful, terraced houses, rue Cremieux, in the 12th district of Paris, August 29, 2014. Businesshala/Charles Plateau/File photo
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FRANKFURT (Businesshala) – With the euro zone housing market heating up, the prospect of a recovery in both the residential and commercial sectors is increasing, the European Central Bank said in a sustainability report on Wednesday.

With families saving during the pandemic and increasingly working from home, demand for property is on the rise, driving home prices up more than 7%, its fastest rate since 2005.

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“The risk of a price correction in the medium term has increased significantly amid rising projections of overvaluation of home prices,” the ECB said in a biennial sustainability report.

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

The ECB said, “Despite improvements in residential construction, labor shortages, global supply chain bottlenecks and input price surges are weighing on the construction sector’s ability to expand the housing supply, which has an upward trajectory on home prices.” Putting pressure on.”

While the prime commercial real estate market is now recovering, the outlook for low-quality commercial real estate is “particularly poor” as remote working, health concerns and the rush for greener properties drive demand towards the prime segment, stated in the report.

On a positive note, the ECB said the risk of corporate bankruptcy, a major fear a year ago, has reduced, even as some government aid measures have now been lifted.

“On average, corporate defaults have come in below the most optimistic expectations earlier in the pandemic, while bankruptcy is about 15% below pre-pandemic levels,” the ECB said.

Reporting by Balazs Koranyi; Editing by Lisa Shumaker

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