FRANKFURT, May 4 (Reuters) - A combination of low interest rates and banks hunting for yield could fuel a dangerous real estate bubble in Germany, Bundesbank board member Andreas Dombret warned on Wednesday, and he urged banks and financial supervisors to be alert.
Housing prices in Germany - relatively cheap compared with other European countries in the past - have risen sharply in recent years, partly as record low European Central Bank rates have encouraged households to take on debt.
Real estate prices in cities like Berlin, Hamburg, Munich or Frankfurt have increased by more than 60 percent since 2010, the Bundesbank estimates, reflecting solid growth, low unemployment and low borrowing costs.
“The good news is that there is currently no real estate bubble that threatens financial stability in Germany. But the traffic light is clearly on yellow,” Dombret told an conference in Frankfurt.
Some early warning indicators such as credit volumes and easing credit standards point to banks willing to take on more risk, he added.
“The mixture of booming real estate market and low interest rates can become a dangerous cocktail for the banking and savings bank sector,” said Dombret, the Bundesbank’s top bank supervisor.
Banks and their supervisors - the ECB for the biggest banks, the Bundesbank and federal watchdog BaFin for the smaller lenders - should do everything to find out how big the risks are and help to prevent the build-up of a bubble as early as possible, Dombret added. (Reporting by Andreas Framke; editing by Mark Heinrich)