ECB Warns of Dangers of `Ripple Effect' From House Price Boom

(Bloomberg) -- The European Central Bank warned there may be “excessive exuberance” in some European housing markets, driven in part by foreign buyers, that could spread to other areas in a “ripple effect.”

Since 2010, house prices in European capital cities have risen far more than national averages, the Frankfurt-based central bank said in its Financial Stability Review published on Wednesday. The ECB cited Berlin, Paris, Vienna and Amsterdam as cities that have performed particularly well.

“Exuberant house price developments in certain regions could, in principle, threaten the stability of financial institutions with mortgage exposures concentrated in those regions,” the ECB said.

Record-low interest rates have fueled demand for residential properties as investors seek to buy assets that generate returns rather than depositing their money in banks. That has benefited housing markets in Germany, France and the Netherlands, as well as Estonia and Ireland, the ECB said.

ECB Warns of Dangers of `Ripple Effect' From House Price Boom

Elevated levels of household indebtedness and large real estate exposures of banks in countries such as Finland and the Netherlands may “amplify” shocks, the ECB said. The central bank said it’s monitoring property-market developments closely and may top up national measures if necessary.