The rise in house prices in most developed countries has put central banks to the test. These institutions have found themselves at a crossroads: gradually withdrawing stimulus, with the risk that real estate will be inflated even more , or accelerating the end of the accommodative policy to control inflation, which would threaten the economic recovery after the crisis. health caused by Covid-19.
Those responsible for monetary policy are aware that the world is coming from another recent global crisis, which precisely stemmed from the real estate problem. Given this precedent, how to control the increase in house prices becomes a dilemma. In fact, one of the solutions managed by a few central banks is to stop the purchase of real estate by raising interest rates .
For their part, some of the components of the US Federal Reserve that defend tapering cite the rise in house prices as one of the reasons, especially because of mortgage-backed securities.
Some countries will meet to establish a policy that guarantees access to housing
The heads of the central banks of New Zealand, South Korea and Canada will meet next week to establish a policy to ensure that housing is affordable for the average worker . In this sense, these three countries stand as the most willing to stop the overvaluation of real estate by taking concrete measures.
For its part, as part of its financial strategy, the European Central Bank (ECB) has relaxed its inflation target and will begin to consider housing costs in its complementary inflation measurements.
In a similar vein, the Bank for International Settlements (BIS) has warned that house prices have risen more than expected during the pandemic, which leads to an increase in the sector’s vulnerability if costs rise of indebtedness.
Kazuo Momma, former head of monetary policy at the Bank of Japan, believes that the real challenge for world economies is to intervene in this market without hurting mortgage holders . “Restricting activities in the housing market could lead to other problems, such as slowing the economic recovery,” he told Bloomberg .
However, from Bloomberg Economics they warn that the number of homes that exceed the purchasing power of buyers has already exceeded the level of 2008, so the alarms of a real estate bubble are raised .
For these experts, given that many economies are still struggling to curb the coronavirus, coupled with slow loan growth, central bankers should focus on other alternatives to increasing interest rates. For example, changes in loan-to-value limits or risk weighting of mortgages.
However, these measures may not be effective , since they depend to a large extent on the fiscal policy implemented by each country, as well as on the supply of each market itself.
Thus, Gunter Schnabl, from Leipzig University, believes that the best approach to the problem would be to “stop the expansion of central bank balance sheets” and then “raise interest rates slowly and diligently for a period of time. long term”.
In addition, Alicia García Herrero, from Natixis, warns that “real estate prices will continue to inflate as long as world liquidity continues to be so wide”, which would have very serious implications than the increase in the price of other assets, since “it affects households in a much broader way, “which could put very tight households at risk.