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The Bundesbank sees a slowdown in the real estate market, but not a correction

Germany’s central bank is predicting a slowdown but not a significant correction in the country’s property market, despite warnings of overvaluation, according to a report published on Thursday.

Claudia Buch, vice president of the Bundesbank, told CNBC’s Jumanne Bercheche: “We are seeing a slowdown in house price growth, but it is not that the overall dynamics have changed.”

“So we still have an overvaluation in the market,” she said.

Some analysts, including Deutsche Bank, predict a sharp decline in the sector. House prices have already fallen about 5% since March, according to Deutsche Bank data, and will fall between 20% and 25% overall from peak to trough, predicted Jochen Mobert, a macroeconomic analyst at the German lender.

Buch said the central bank’s concern was the degree of overvaluation driven by the loosening of credit standards as a result of very rapid growth in home mortgages.

“We’re seeing a slowdown here as well,” she said. “So we don’t see any further steps being taken now to slow the build-up of weakness in that segment of the market, but we do think we need to continue to watch the market because we know that private households are very exposed to mortgages. loans, so it is the largest component of private household debt.”

The German market has a large share of fixed-rate mortgages, so households are less vulnerable to rising interest rates than in some other countries, she continued.

“Of course the risk doesn’t go away, it’s still there in the system, but that exposure to interest rate risk is very much related to the financial sector, the banks that make the mortgage loans.”

Bundesbank Financial Stability Review for 2022 highlights other issues, including worsening macroeconomic conditions and a slowdown in German economic activity, higher energy prices and falling real disposable income.

It described the German economy as being at an “inflection point” following a price correction in financial markets that led to the write-down of securities portfolios. He also cited increased collateral requirements in futures markets and increased risks from corporate loans.

It said there had so far been no fundamental reassessment of credit risk at German banks, but said their financial system was “vulnerable to adverse events”.

“The message is very clear, we need a resilient financial system, we need to continue to build resilience over the next period of time,” Buch told CNBC.

Additional reporting by Hannah Ward-Glenton

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