Developments in real estate markets are “confusing” given rising interest rates and uncertain economic prospects, warns an economist from the Bank for International Settlements (BIS), who warns against bad habits acquired during the period of low rates.
In a number of countries, residential real estate has recently stabilized, or even started to rise, noted Claudio Borio, head of the monetary and economic department, during a press conference during the publication of the quarterly report of this institution considered the central bank of central banks.
If factors by country can explain this evolution, this movement in real estate prices is widespread enough to be questioned, particularly at a time when the economy is weakening, he adds.
Structural factors can certainly play a role, considers the economist, who cites as an example the fact that individuals have wanted larger properties since the Covid-19 pandemic in order to be able to telework.
But he also sees more cyclical explanations, linked to the fact that financial markets now think that the tightening of interest rates seems to have reached its peak.
Now if it is not impossible that this peak is approaching, we must also not exclude that inflation turns out to be more stubborn than expected, warns Mr. Borio.
This unusual development in real estate after a tightening of monetary policies is one of the sources of vulnerabilities in the economy which are to a large extent the legacy of a period of very low interest rates which lasted a very long time, judges -he.
Invest in real estate from €1,000. OUR rankings of the best SCPIs
The very low level of rates since the 2008 financial crisis, then with the measures to support the economy during the Covid-19 pandemic, has long pushed companies into debt and fueled the boom in real estate and stock markets .
But business models built on this basis are particularly vulnerable in current market conditions, Borio stressed.
In its quarterly report, the BIS notes that with the end of the cycle of increases (editor’s note: rates) perceived to be in sight, risk assets have held up well in recent months, despite a brief pause in August, when the better than expected figures for American GDP at the end of July had revived expectations of a new tightening on rates.
In detail, however, the stock markets made a distinction between the United States, where fears of recession have weakened, and European stocks, where gains have been weaker, as well as Chinese stocks, especially in construction. and infrastructure, weighed down by a weaker recovery than expected.