And in a low-interest-rate setting, asset prices react more strongly to minor changes in risk premia. Unexpected changes in market interest rates could thus be accompanied by a higher degree of volatility. This could potentially result in increased capital requirements for market risk. Valuations in the real estate market are particularly significant for the German financial system.
This is because more than half of all loans to households are loans for house purchase. [1] At 80%, real estate makes up the lion’s share of fixed assets in Germany. Our assessment of the real estate market situation is similar to that of last year: cyclical risks, to which the real estate market is making a significant contribution, are continuing to mount.