Macroprudential Bulletin

Understanding the drivers of house price changes and the effects of different scenarios on the housing market helps us to assess risks and identify suitable macroprudential measures. We propose a model framework based on Bayesian vector autoregressions to shed more light on these issues.

The housing market is in equilibrium when prices and investment are in line with their long-term determinants. Using a novel framework, we estimate that house prices are more than 10% above equilibrium levels and could drop as a result of weaker demand, while investment is close to equilibrium.

As interest rates rise, it is important to understand how this could affect the ratio of borrowers’ repayments to their annual income, also known as the loan-service-to-income ratio. We explore this using a simulation exercise based on loan-level data.

Many EU countries have used sectoral risk weight policies to address systemic risk in housing markets. We show that sectoral risk weight floors, add-ons and multipliers have a similar impact to other sectoral capital buffer and leverage ratio policies.

Firms often use real estate as collateral against loans. We investigate whether this affected their access to credit during the COVID-19 pandemic, when commercial real estate prices were falling.