The Vice Chairman of the Governing Board of the Swiss National Bank, Mr. Fritz Zurbruegg has disclosed that Switzerland’s housing market finds itself within a danger zone, as house prices continue to surge upwards, and affordability becomes farfetched.
Hence, the Vice Chairman disclosed that, these developments depict the likelihood of a housing bubble.
Mr. Zurbruegg, in his speech on “Mortgage and real estate markets: Current developments pose risks to financial stability”, re-echoed signals of warning on the need to rescue the country’s housing market from price hikes.
Furthermore, Mr. Zurbruegg disclosed that over the past fifteen (15) years, the prices of houses in the country have increased exponentially.
“Average prices of single-family houses and privately owned apartments, for example, have risen by over 80% in this country over the last 15 years.
“Similar growth can be observed in the volume of mortgage lending at Swiss banks.”
Mr. Fritz Zurbruegg
Also, the country’s real estate imbalances are getting worse, and it requires stringent vigilance from the authorities, Mr. Zurbruegg disclosed.
The Vice Chairman disclosed that, the central bank’s surveillance has become relevant because, a significant share of the newly issued mortgages could become impossible to afford if borrowing cost abruptly rises.
Furthermore, there are “clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other”, he said.
“Markets today are more vulnerable to corrections in the form of declining prices and increasing numbers of mortgage loan defaults”.
Mr. Fritz Zurbruegg
Additionally, Mr. Zurbruegg hinted that “It is important to continue to closely monitor developments”.
In the meantime, the Swiss property market is said to have been overvalued by about 30 percent, according to analyst findings.
Also, the hosing market index by Union Bank of Switzerland (UBS) Group AG, hints that the market is very close to a threshold that will put the housing market into another bubble.
Meanwhile, the Vice Chairman revealed that, “in the prevailing low interest rate environment, mortgage rates have never been so attractive”.
Mr. Zurbruegg further warned that, continued low interest rates could worsen the situation in Switzerland by encouraging even more risky behaviour.
Meanwhile, Swiss authorities last year suspended the countercyclical capital buffer for banks’ mortgages bid to spur lending during lockdowns.
Although bank’s capital is currently sufficient, the SNB regularly assesses the need for reactivating the buffer, Zurbruegg disclosed.
Furthermore, a global boom in house prices saw countries ranging from the United States of America (USA) to New Zealand record surging property prices during the coronavirus pandemic.
Additionally, the Vice Chairman disclosed that, “the probable continuation of the current upswing on the mortgage and real estate markets means that risks to financial stability are likely to remain in the spotlight”.
The Vice Chairman further revealed that, the real estate and mortgage markets play significant roles in the banking sector and hence has salient relevance to overall stability of the financial sector.
However, Mr. Zurbruegg revealed that according to the bank’s assessment, “the strong growth in these markets over recent years has given rise to vulnerabilities, and risks to financial stability have increased”.
Although the Bank of Switzerland foresees the likelihood of another housing bubble, the Bank cannot say for sure whether it will erupt, the Vice Chairman disclosed.
“Are we heading for a big real estate crash? Is there a bubble that will burst soon? If you were expecting me to answer these questions today, I’m afraid I have to disappoint you.
“To predict the future would require a crystal ball. By their very nature, crises cannot be predicted.”
Mr. Fritz Zurbruegg
READ ALSO: The world on the edge of another financial crisis – Russia’s central bank
