European Central Bank warns of bubbles in property and financial markets
The European Central Bank warned of stretched valuations in many asset markets, as the region continues to recover from the coronavirus pandemic on the back of ultra-low interest rates and massive stimulus measures.
In its biannual stability report on Wednesday, the euro zone’s central bank mentioned vulnerabilities in property and financial markets, adding that “risk-taking by non-banks and elevated sovereign and corporate debt are building up.”
On property, it said risks of price corrections over the medium term have increased substantially amid rising estimates of house price overvaluations.
“In particular, households with variable rate mortgages or shorter fixed-rate periods on their mortgages are exposed to an unexpected rise in interest rates, which could adversely affect their ability to service their debt,” the report said.
Luis de Guindos, the vice president of the ECB, also highlighted a “striking buoyancy” for equity and risky asset markets, “making them more susceptible to corrections.”
“There have been examples of established market players exploring more novel and more exotic investments. In parallel, euro area housing markets have expanded rapidly, with little indication that lending standards are tightening in response,” he said in the report.
Reference: Reuters
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