Germany’s central bank warned on Thursday about anomalous valuations in the housing market, calling it a “specific vulnerability” as property prices continue to rise.
“We’ve seen basically all the indicators – prices, credit – those indicators continue to rise in Germany and you don’t really see a big impact of the pandemic,” said Claudia Buch, vice president of Bundesbank.
Speaking to CNBC’s Karen Tso, she said that her team at Bundesbank estimates for price deviations from their fundamentals to be around 10% to 30%.
“A new development is that these greater assessments are also more comprehensive, so they are outside of the big cities… [and] Around 90% of the households expect the prices to continue to rise,” she said.
The latest financial stability review by the Bundesbank also noted on Thursday that German lenders should build a capital buffer to address these potential issues in the housing market.
There are concerns that with higher valuations in this area, banks are not predicting the true value of the collateral, and are therefore at greater risk of price adjustments in the future.
“If the asset market were to catch up with the development of volatility, financial stability would be at risk, causing debt volumes and prices to coincide with a decline in borrowers’ credit stability,” the German Central Bank said in the report.