Real Estate Bubble? Mario Draghi Sees No Signs of One

7 November 2017

The ECB is maintaining interest rates at historic lows. Credit is cheap, but the central bank’s president sees no evidence of a bubble in the real estate market in the Euro Zone.

The European Central Bank (ECB) is maintaining interest rates at record lows. The benchmark rate is at 0%, a level that is intended to encourage banks to provide financing to leverage the economy. Despite the availability of cheap money, which is facilitating debt-fuelled purchases of real estate, Mario Draghi says there are no signs of a bubble in the real estate market.

“There are no signs of a bubble in the real estate market,” the chairman of the euro’s monetary authority stated during a speech in Frankfurt, Germany. Thus, Draghi rejected claims that the bank’s policy of maintaining interest rates low is behind the rise in housing prices in the countries of the Eurozone, including Portugal, where property values have already returned to the highs of 2011.

The President of the ECB also rejected the possibility that his policy is creating future problems for the financial sector, as Eurozone banking continues to struggle with high levels of bad debt. “Even though credit default levels have fallen from 7.5% in early 2015 to a current level of 5.5%, the problem has not been resolved yet,” Mr Draghi said.

“European supervision has been instrumental in building a stronger and more resilient financial system,” he added, noting that “the country where a bank is located is now considered a less preponderant factor in the perception of risk.” “These two developments have been a crucial part of our monetary policy since banks are the main channel of transmission,” he said.

Original Story: Economia Online – Paulo Moutinho

Translation: Richard Turner