Switzerland’s central bank warns of potential housing bubble as prices keep rising

Some estimates say Switzerland’s housing market is overvalued by 30 percent

Swiss National Bank Vice President Fritz Zurbruegg (Getty)
Swiss National Bank Vice President Fritz Zurbruegg (Getty)

Switzerland’s national bank warned of a correction in the country’s housing market as home prices keep rising.

Schweizerische Nationalbank Vice President Fritz Zurbruegg said in a speech on Tuesday that new mortgage borrowers may not be able to afford their loans if borrowing costs jump, according to Bloomberg. Low interest rates could worsen the situation by encouraging risky borrowing and lending, he said.

Zurbruegg cited signs of “unsustainable mortgage lending” as well as “risks of a price correction” and added, “the probable continuation of the current upswing on the mortgage and real estate markets means that risks to financial stability are likely to remain in the spotlight.”

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By some estimates, Swiss home prices are overvalued by 30 percent, and UBS Group AG has also warned of a bubble. Also at risk of are New Zealand, Canada, Sweden, and the U.S. China last year adopted policies to slow the country’s housing market although the verdict is still out on how effective of those decisions were.

Switzerland’s housing market required the “vigilance” of authorities, Zurbruegg said.

[Bloomberg] — Dennis Lynch