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Paola Di Casola

25 May 2022
Financial Stability Review Issue 1, 2022
House prices increased substantially in advanced economies during the pandemic, fuelling concerns about possible price reversals and their implications for financial stability. Shifts in housing preferences, possibly reflecting a desire for more space coupled with less need for commuting due to teleworking modalities, and low interest rates have been important drivers of such recent strong house price growth across advanced economies. In the current low interest rate environment, increased sensitivity of house price growth to changes in real interest rates makes substantial house price reversals more likely. An abrupt repricing in the housing market – if the demand for housing were to go into reverse, for example, with a return to pre-pandemic work modalities, or real interest rates were to rise significantly – could produce spillovers to the wider financial system and economy.
JEL Code
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
R30 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→General