SNB Warns of Swiss Housing Correction as Bubble Risks Mount

(Bloomberg) -- Switzerland’s housing market is in mounting danger of a correction as prices continue to rise and affordability becomes stretched, according to Fritz Zurbruegg, vice president of the country’s central bank.

He said real estate imbalances are worsening and require “vigilance” on the part of authorities. That’s because a sizable share of newly granted mortgages could become impossible to afford if borrowing costs suddenly rise.

According to some measures, Swiss property is overvalued by as much as 30%. A housing index by UBS Group AG suggests the market is near a level that would put the market in a “bubble.” 

“Markets today are more vulnerable to corrections in the form of declining prices and increasing numbers of mortgage loan defaults,” Zurbruegg said in a speech in Luzern on Tuesday. “It is important to continue to closely monitor developments.” 

A global boom in house prices saw countries from the U.S. to New Zealand record surging property prices during the coronavirus pandemic. Zurbruegg warned that continued low interest rates could worsen the situation in Switzerland by encouraging even more risky behavior.

Swiss authorities last year suspended the countercyclical capital buffer for banks’ mortgages bid to spur lending during lockdowns. Although banks’ capital is currently sufficient, the SNB “regularly assesses” the need for reactivating the buffer, Zurbruegg said. 

There are “clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other,” he said. “The probable continuation of the current upswing on the mortgage and real estate markets means that risks to financial stability are likely to remain in the spotlight.”

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