November 6, 2018 / 9:11 AM / 8 months ago

ECB expects moderation in euro zone housing market growth

FILE PHOTO: The headquarters of the European Central Bank (ECB) and the Frankfurt skyline with its financial district are photographed on early evening in Frankfurt, Germany, March 25, 2018. REUTERS/Kai Pfaffenbach/File Photo

FRANKFURT (Reuters) - The rise in euro zone house prices is likely to slow as the market’s cycle is relatively mature, but labor shortages could mitigate any such moderation, the European Central Bank said in an economic bulletin article on Tuesday.

House prices are not yet above their fundamental levels but as they are already higher than pre-crisis levels after a four-year upturn and economic growth is slowing, the expansion in the property market is also expected to moderate, the ECB said.

With the ECB keeping interest rates at a record low for years, some policymakers are concerned that it could fuel a property bubble, which may burst once rates are raised, leading to yet another crisis for the bloc.

ECB banks supervisor Daniele Nouy recently argued that the property market may be the source of the next crisis, even if she could not predict how it would start.

“A turning point analysis suggests that the housing market upturn is in a relatively advanced phase compared with the average duration of such upturns,” the ECB said. “The ... upturn is expected to continue but at a more moderate pace.”

It added that increasing labor shortages will also limit the market’s expansion as these capacity constraints are larger than those experienced by the broader economy.

“These constraints could however mitigate the envisaged moderation in house prices,” the ECB added.

The percentage of firms reporting labor shortages increased to 20 percent by the third quarter of 2018 from 5 percent three years earlier, with France leading the way, suggesting that the lack of workers has become a significant factor in limiting the market’s growth.

Still, with rates low the ECB said it also expects mortgage lending to remain dynamic in the coming years.

Reporting by Balazs Koranyi; editing by David Stamp

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