that household debt repayment is growing as real estate continues to remain “significantly overpriced”. However, as the central bank executives in the East Asian nation meet on Thursday, they are also expected to give due consideration to the recent rise in new COVID infection when making their policy decisions. Meanwhile, in Europe, the central monetary authority has also signalled its concern over housing pressures, as European Central Bank, which raised its inflation target this month, takes account of owner-occupied housing costs in their supplementary measures of inflation.
In its annual report last month, the Bank for International Settlements also warned house prices escalated more steeply than expected during the global health crisis last year. On the other hand, as central banks begin to gradually withdraw their pandemic-induced financial support, they are face the crucial challenge of doing so without hurting mortgage holders.
“Monetary policy is a blunt tool,” Kazuo Momma, Former Assistant Governor of the Bank of Japan, said. “If it is used for some specific purposes like restraining housing market activities, that could lead to other problems like overkilling the economic recovery.”
Nevertheless, there are other risks which may arise if authorities choose to not act. Analysis by Bloomberg Economics already shows 2008 style bubble warnings, and stoking warnings of financial imbalances, raising cause for concern.
However, according to James Pomeroy, a global economist at HSBC Holdings, the current situation in the housing market may not trigger a crisis similar to 2008, considering the fact that owner-occupy demand versus speculative buying remains a strong driver of the growth, while banks are also not following the kind of lose lending that led to the global financial crisis.
“If house prices are rising due to a shift in supply versus demand, which the pandemic has created due to more remote working and people wanting more space, it may not trigger a crisis in the same way as previous housing booms,” he said. “The problems may arise further down the line, with younger people priced out of the property ladder even more.”
