ECB Warns of Bubble in Housing Market and Stock Market

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The European Central Bank (ECB) has warned of a bubble in the real estate markets in its semi-annual report on financial stability. In addition, constantly rising prices in the financial markets are also a cause for concern.

 

“The concern is related to the buoyancy in credit, stock and housing markets, as well as higher levels of corporate and government debt as a result of the coronavirus pandemic,” reads the Financial Stability Review.

The ECB sees a problem, especially in the residential real estate markets, where high prices were already being paid for a home before the pandemic. “That market is more prone to a correction,” it reads. However, the European Central Bank also notes that there are few indications that credit conditions have tightened.

The risks related to the corona pandemic have decreased compared to six months ago, the ECB believes. The economic recovery is a stabilizing factor here. “The risk of business failures and losses for the banks is clearly lower,” it sounds. However, the rising number of infections, supply problems and expensive energy prices create new challenges. “The pandemic, therefore, remains one of the main risks to economic growth.”

Pension funds and insurers have recently opted for more risky investments, and the ECB warns there about more credit losses if the economy starts to do less well.

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