The Bundesbank issued a warning on Thursday about skewed real estate market valuations, calling it “specific vulnerabilities” as real estate prices continue to soar.
Claudia Buch, deputy governor of the Bundesbank, said: “We have basically seen all the indicators-prices, credit-these indicators have been rising in Germany, and you have not really seen the pandemic. Significant impact.”
In an interview with CNBC’s Karen Tso, she added that her team at the Bundesbank has estimated the deviation of prices from their fundamentals by about 10% to 30%.
“A new development is that these overestimations are also more common, so they are outside the big cities… [and] Almost 90% of households expect prices to continue to rise,” she said.
The Bundesbank’s latest financial stability assessment also pointed out on Thursday that German banks should establish a capital buffer to solve these potential problems in the real estate market.
Some people worry that due to the high valuation of the industry, banks have not correctly estimated the true value of the collateral, so they are more susceptible to future price adjustments.
The Bundesbank stated in the report: “If the real estate market develops unstable, financial stability will be at risk, and the increase in credit volume and prices will occur at the same time as the deterioration of the sustainability of borrowers’ debt.”