Isabel Schnabel, Real Estate News, ET RealEstate
FRANKFURT: European Central Bank policy cannot ignore a surge in house prices which has led to a potentially dangerous overvaluation, Isabel Schnabel, member of the ECB’s board of directors, said on Tuesday.
House prices are rising rapidly across much of the euro area and low interest rates, combined with a particularly high savings rate, have led to an increase in real estate investment, especially among the wealthiest households in the bloc. .
“Monetary policy cannot turn a blind eye to such developments in an institutional framework in which macroprudential policies are, in principle, the first line of defense but are not yet fully effective,” said Schnabel.
Schnabel, head of market operations at the ECB, said house prices are currently overvalued relative to the fundamentals of the euro area as a whole, making them vulnerable to future price corrections.
Gradually moving away from bond buying would mitigate financial risks and reduce the impact of monetary policy on the distribution of wealth, argued Schnabel.
If housing costs were included in the inflation data, it would have increased price growth by 0.4 to 0.5 percentage points in the second quarter, Schnabel explained, a big boost given that the inflation is already double the bank’s 2% target.
The ECB has been above its inflation target for almost a decade, but the inclusion of housing costs would have placed it at or near the target for several years in the recent past, according to an ECB study.
Responding to a recent academic debate on the sequencing of the ECB’s exit from exceptional stimulus measures, Schnabel rejected the idea of ââan interest rate hike before bond purchases ceased, also known as quantitative easing.
“By raising policy rates before ending net asset purchases, central banks would readily accept losses on their balance sheets that would ultimately result in losses for the average taxpayer, and continued net asset purchases would primarily benefit corporate clients. wealthier households, âshe said.