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

Maximilian Zurek ()
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Maximilian Zurek: University of Bayreuth

Journal of Financial Services Research, 2022, vol. 62, issue 1, No 2, 27-59

Abstract: 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.

Keywords: Lending risk; Regional banks; Collateral; Real estate markets (search for similar items in EconPapers)
JEL-codes: G11 G21 G32 R31 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10693-021-00358-9

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