Buba’s bubbles

14 November 2012 By Olaf Storbeck

The German central bank is nervously eyeing rising property prices and is pledging to prevent a possible bubble early on. However, the traditional armoury of central banks is quite empty. One of the most orthodox central banks might be forced to think out of the box soon.

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In its annual Financial Stability Report, published on Nov. 14, Germany’s Bundesbank stressed that housing prices in urban areas are accelerating. The central bank pointed out that price exaggerations in some market segments are possible and could become a threat to financial stability in the future:
“At the moment there is no sign of a nascent dangerous spiral of rising housing prices, laxer credit standards, increased lending and growing housing demand. However, the experiences of other countries show that precisely such an environment of low interest rates and high liquidity can encourage exaggerations on the real estate markets which pose a considerable threat to financial stability.”

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