Real estate, QE and mortgage loans – Is there a perfect storm on its way?
(2019) Forum financier : revue bancaire et financière — Vol. 2019, n° 2, p. 107-114 (2019)
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- Interest rates are at unseen low levels. This brings us in an economic setting which has never been observed. Belgian residential real estate prices have been boosted by this low interest rates and above average growth rates were recorded over the last decades. The growth in real estate prices occurred without a lot of volatility which misleadingly suggested that real estate is a relatively safe asset. The low cap rates however imply a high interest rate sensitivity. If cap rates would increase in the near future, this is most likely to be due to increasing credit spreads. Pure credit spreads however are unobservable since they have been squeezed by the ECB’s QE monetary policy. A sudden increase in credit spreads would affect household wealth, financially weaker corporates as well as banks. The exposure to mortgage loans will be an important factor since these portfolios are large, they have been growing lately at a high speed and their quality has been deteriorating. The commercial margin on mortgage loans is so low that questions can be raised whether (credit) risks have been sensibly priced into the contracts. Notwithstanding reassuring studies from policy makers and monetary economists, a perfect storm cannot be excluded. In due time, financial markets will be the judge.
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Annaert, J., Claes, A., De Ceuster, M., & Jonas Vandenbruaene. (2019). Real estate, QE and mortgage loans – Is there a perfect storm on its way? Forum financier : revue bancaire et financière, 2019(2), 107-114. https://hdl.handle.net/2078.5/170396 (Original work published 2019)