ECB´s Trichet says sharp house price rises in some euro zone countries unwelcome
Thursday, February 3, 2005 4:00:07 PM
ECB's Trichet says sharp house price rises in some euro zone countries unwelcome FRANKFURT (AFX) - European Central Bank president Jean-Claude Trichet said the sharp rises in house prices in some euro zone countries are unwelcome
He rejected the argument that strong house price growth could be positive for consumer confidence and said the sharp rises in prices in some countries are unlikely to be sustainable
"In some parts of the euro area we see (house price) phenomenona that are not, in our view, sustainable and certainly are not necessarily welcome," Trichet told the ECB's regular news conference
He said the ECB is not alarmed by house price inflation in the euro zone as a whole, but the rises in some markets require it to be vigilant
Real estate prices have risen strongly in Spain and Ireland for several years, and prices in France have also started to advance sharply recently. But property markets in Germany and Austria have been flat for a long period
Trichet said robust lending growth has contributed to some of the price rises
But he warned: "The combination of ample liquidity and strong credit growth could, in some parts of the euro area, become a source of unsustainable price increases in property markets." And he said central banks have to react to asset price bubbles before they burst, not afterwards
"There are risks there which could materialise and we have to be vigilant," he said
M3 money supply growth is also growing strongly and Trichet said this can no longer be explained by portfolio shifts out of riskier investments and into assets included in M3. And while the resulting overhang of excess liquidity will not necessarily lead to inflation in the short term, it will increase inflation pressures in the long run, so vigilance over monetary growth is also required, he said
Trichet noted that spreads in bond markets are now very low, and said this appears to be symptomatic of an underpricing of some risks
Overall bond yields are also low because of low levels of real interest rates and inflation expectations, and the central bank will therefore need to be vigilant over the possibility of a shift in the assessment of risks by bond markets, he said
"I will not be alarming but I must observe that we have perhaps an appreciation of risks which is quite low...at the European and global level," he said
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