Residential property prices in the eurozone will come under pressure as the coronarecession puts people out of work and consumer confidence weakens, the European Central Bank (ECB) warned in a recent report on Wednesday.
Residential property prices were extremely resilient in the first wave of the coronavirus pandemic, rising five percent in the first half of the year thanks to government measures, including a moratorium on loan repayments and job preservation programs, the ECB said.
They warn, however, that forecasts are now less rosy as some of these measures are phased out and economic indicators signal a deterioration.
"Residential property prices could face adverse circumstances in the future resulting from a significant decline in gross domestic product (GDP) and a weakening of consumer confidence and employment expectations," the ECB warned in a financial stability report.
Observed by individual countries, residential property prices are most overstretched in Luxembourg and households are most indebted in the Netherlands.
Banks are already limiting the availability of credit and weakening demand, reminds Reuters of the results of the ECB's survey, published in October.
The ECB is also concerned about a potentially strong increase in public debt if governments, especially in southern Europe, are required to issue guarantees for corporate loans.
They estimate that in that case, the Spanish public debt could rise to eight percent, the French five, and the Italian three percent.
"Governments support the economy through safeguards, and the vulnerability of member states has increased in the medium term, but is still contained in the short term," the ECB concluded.
They also warn that banks may need to increase loan loss provisions, given frequent difficulties in paying off loan instalments and company bankruptcies.