German central bank warns of overblown property prices

Germany's central bank warned Thursday about skewed valuations within the housing market, calling it a "specific vulnerability" as property prices proceed to soar.

"We have basically seen all indicators — prices, credit — those indicators kept increasing in Germany and you don't really see a big effect of the pandemic," Claudia Buch, vice-president on the Bundesbank stated.

Speaking to CNBC's Karen Tso, she added that her crew on the Bundesbank has come up with estimates of about 10% to 30% for value deviations from their fundamentals.

"What's a bit of a new development is that these overvaluations are also more widespread, so they are outside of the big cities … [and] almost 90% of the households expect prices to keep increasing," she stated.

The newest monetary stability assessment by the Bundesbank additionally famous Thursday that German lenders ought to construct up capital buffers to deal with these potential points within the housing market.

There are considerations that with overvaluation within the sector, banks aren’t estimating the true worth of collateral appropriately, and are subsequently extra uncovered to future value changes.

"Financial stability would be at risk if destabilizing developments were to take hold in the property market, whereby rising credit volumes and prices were to coincide with a deterioration in borrowers' debt sustainability," the German central bank stated within the report.

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