Rising Rates Strain Real Estate Market, Adding Risks for Households and Firms
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Tighter financing conditions have reduced affordability and demand for real estate assets, putting downward pressure on prices. Higher debt service costs also strain more indebted borrowers.
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While labor markets support household balance sheets for now, commercial real estate firms face more severe challenges from rising costs and declining profitability.
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Although banks' commercial real estate exposures are smaller, losses in this segment could amplify wider shocks.
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Risks are amplified by high leverage, with debt ratios for households and larger firms at or exceeding pre-crisis levels.
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Macroprudential policies may help reinforce resilience, especially for residential real estate, though few measures currently target commercial real estate.