Real Estate Markets and Lending : Does Local Growth Fuel Risk?

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Zurek, Maximilian:
Real Estate Markets and Lending : Does Local Growth Fuel Risk?
In: Journal of Financial Services Research. Bd. 62 (2022) . - S. 27-59.
ISSN 1573-0735
DOI: https://doi.org/10.1007/s10693-021-00358-9

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Abstract

Real estate price growth affects credit risk for several reasons: it provides input for economic forecasts as it’s closely tied to economic growth; when used as collateral by banks, rising real estate prices may decrease both expected and actual losses; and banks may become less risk averse in lending practices in the presence of rising property prices. Therefore, we analyze these effects on loan portfolios’ estimated and realized risks on a local level. Using data of 390 German savings banks, however, we find that real estate prices have little or no impact on savings banks’ credit portfolio risk or risk precautions.