Eurozone house prices are set for a correction as interest rates start to rise in response to higher inflation, posing greater risks for low-income households, the European Central Bank has warned.
A reversal in the region’s housing markets was one of the main risks identified by the ECB’s twice-yearly financial stability review, which also warned that Russia’s invasion of Ukraine meant more companies were likely to default due to lower growth, higher inflation and rising borrowing costs.
Predicting that asset prices could fall further if economic growth continues to weaken or inflation rises faster than expected, the ECB said a sharp increase in rates could cause a “reversal” in eurozone house prices, which it estimated were already about 15 per cent overvalued, when weighed against overall economic output and rents.