Will Eurozone encounter a real estate bubble?

The head of the ECB banking supervision, Andrea Enria said there has been “an increase in vulnerabilities” in some countries’ residential real estate and an increase in cheap loans, have overheated the real estate market in many places, leading to an increased risk of a bubble.

The European Central Bank has warned of a new bubble in the housing market, which could lead to a new financial crash.

A real estate bubble is a strong and persistent deviation of the price level from fundamental data like income, economic growth and population migration.

Speaking in the Economic Committee of the European Parliament, Enria said that, while the number of non-performing loans is still manageable, the quality of the underlying assets appears to be deteriorating. He also said banks’ forecasts for bad loans might be overly optimistic.
A bubble is characterized by temporary periods of high demand, low supply and inflated prices, which creates instability in the housing market – and the economy as a whole.