engleski

INCREASE OF RESIDENTIAL REAL ESTATE PRICES AS A THREAT OF SYSTEMIC RISK ACCUMULATION IN CROATIA – NEW CHALLENGES FOR MONETARY POLICY MAKERS

The recent developments showed that financial stability and real estate prices are strongly related. Also, boom-bust price cycles in real estate sector have huge impact on systemic risk acumulation and can cause large macroeconomic imbalances. In the period of the recovery of the economy, the central banks have continued with policy of quantitatie easaning and stimulation of credit cycle upturns. Low interest rate environment and low-cost credit supply could contribute to increase of demand for housing loans. Consequently, the prices in residential real estate sector could increase. This paper analyses the developments in residential real estate sector and explores the possible causes of real estate price changes in Croatia. The correlation analysis confirmed that better financial conditions have strong positive correlation to residential real estate price growth. Also, the average nominal net payment and residential real estate prices have strong positive correlation. The Granger Causality test confirmed that banks` credit activity for house loans, the increase of nominal net payment and better financial conditions can cause residential real estate prices increase. The problem of residential real estate prices could encourage the procyclical behaviour of debtors and creditors, which in the long-run could lead to new systemic risk accumulation and instability of the macroeconomic balance. Due to events in the recent past, the regulators, especially central banks, observe the real estate prices trends. The prices of real estate used as collateral for housing loans have huge importance for monetary policy makers because they can affect the banks` balance sheet and stimulate the multiplication of loans and deposits. From that point of view, the role of residential real estate prices is crucial in the monetary transmission mechanism because of targeting effective monetary strategy.

Financial stability, Monetary policy, Residential Real Estate Market

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