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Real estate markets in an environment of high financing costs

Author

Listed:
  • Ryan, Ellen
  • Jarmulska, Barbara
  • De Nora, Giorgia
  • Fontana, Adele
  • Horan, Aoife
  • Lang, Jan Hannes
  • Lo Duca, Marco
  • Moldovan, Claudiu
  • Rusnák, Marek

Abstract

Tighter financing conditions have reduced the affordability of and demand for real estate assets, putting downward pressure on prices. They have also increased the debt service costs faced by existing borrowers, with more-indebted borrowers in countries with widespread variable-rate lending being the most affected. Robust labour markets have thus far supported household balance sheets, thereby mitigating credit risk in banks’ relatively large residential real estate exposures. Commercial real estate firms, by contrast, have faced more severe challenges in a context of rising financing costs and declining profitability. While commercial real estate markets have comparatively low bank exposures, losses in this segment could act as an amplifying factor in the event of a wider shock. JEL Classification: G00, G01, G21, G51, R30, R31

Suggested Citation

  • Ryan, Ellen & Jarmulska, Barbara & De Nora, Giorgia & Fontana, Adele & Horan, Aoife & Lang, Jan Hannes & Lo Duca, Marco & Moldovan, Claudiu & Rusnák, Marek, 2023. "Real estate markets in an environment of high financing costs," Financial Stability Review, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:fsrart:2023:0002:2
    Note: 2731285
    as

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    File URL: https://www.ecb.europa.eu//pub/financial-stability/fsr/special/html/ecb.fsrart202311_02~75cf0710b9.en.html
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    More about this item

    Keywords

    commercial real estate; financial stability; residential real estate;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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