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European real estate bubble a ‘real possibility,’ Commerzbank says

The Eurozone is at risk of a new real estate bubble as a result of expansionary monetary policy from the European Central Bank (ECB), analysts at Commerzbank have warned.

The ECB council meets on Thursday 6 June and is likely to decide on the details of the third edition of its targeted longer-term refinancing operations, which usually provide financing to credit institutions for periods of up to four years.

The central bank has faced calls from some corners of the market for fresh stimulus to aid the slowing European economy.

However, a note from Commerzbank senior economists Dr Ralph Solveen and Dr Jorg Kramer stated: “The ECB’s expansionary monetary policy has a cost and it comes in the form of higher house prices, which already appear expensive in some countries, and the threat of a property price bubble is a real possibility.”

Commerzbank highlighted that house prices have been increasing rapidly in the majority of Eurozone economies, including the large economies of Germany, Belgium and France. With an increase of around 4.5% in 2018, Germany was slightly above average in terms of rising house prices, while Slovenia and Latvia saw double-digit rises. Portugal, the Netherlands and Luxembourg also saw their home prices increase by around 10% on average last year.

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