German property market will slow — but no significant correction ahead, central bank says

According to a report published Thursday, Germany's central bank is predicting a slowdown but no significant correction in the country's property market.

The vice president of the Bundesbank said that there is a slowdown in the price growth for residential real estate.

She said that we still have over valuations.

The report states that there has been a strong rise in German residential property prices since 2010 and that there has been an increase in overvaluations.

Analysts atDeutsche Bank have predicted a decline in the sector. Jochen Moebert, a macroeconomic analyst at the German lender, predicts that house prices will fall between 20% and 25% in total from their peak to trough in the coming months.

The central bank was concerned about the extent to which overvaluation was being driven by the rapid growth of credit residential mortgage loans.

She said that there is a slowdown there. We don't currently think that additional measures are taken to slow down the build up of vulnerabilities in this market segment, but we do think we need to keep monitoring the market because we know that private households are very much exposed to mortgage loans.

Households are less vulnerable to rising interest rates in Germany because of the high share of fixed-rate mortgages.

The risk is still in the system, but it is mostly with the financial sector, the banks who have done that lending with regard to mortgage loans.

The fall in real disposable income is one of the issues highlighted in the financial stability review.

The German economy is at a turning point after price corrections in financial markets resulted in write-offs on securities portfolios. Increased risks from corporate loans are cited.

The financial system of Germany is vulnerable to adverse developments, but there has been no fundamental assessment of credit risk in German banks.

The message is very clear, we need a resilient financial system and we need to build resilience over the next period of time.

Hannah Ward-Glenton reports additional information.