March 28, 2024

DealBook: Switzerland to Require Banks to Hold More Capital to Offset Mortgages

LONDON – Switzerland said on Wednesday that Swiss banks would be required to hold additional capital for residential mortgages amid concerns that the country’s booming property market was overheating.

The country, which already has more stringent capital rules for its banks than other European nations, said lenders would be required to hold an additional 1 percent of risk-weighted assets to make the financial system more stable in light of an “excessive rise in prices in the real estate market and exorbitant mortgage debt.” Banks have until Sept. 30 to comply.

Property values in Switzerland have been rising as investors spooked by the uncertainties of the economic crisis in the euro zone sought a more stable places for their money.

Greater demand for Swiss homes has pushed up prices at a time of low interest rates and led many buyers to take on larger mortgages. The Swiss central bank has been unable to cool the market by increasing borrowing rates because of an overvalued Swiss currency.

An index created by the Swiss bank UBS measuring the likelihood of a Swiss property bubble was “clearly in the risk zone,” the bank wrote in a note to investors this month.

In the final three months of 2012, house prices soared to six times the annual average Swiss household income compared with about four times in 2000, according to the bank. It called the ever-rising demand for properties not intended for personal use “remarkable.”

The government said it was following a recommendation by the Swiss National Bank to increase the capital buffers. “The sustained growth in mortgage debt and rise in real estate prices of residential properties has led to imbalances which pose a significant risk to the stability of the banking sector and to that of the economy,” the government said in a statement.

Mortgage debt has been growing faster than the economy, and mortgage volume in relation to income has reached “risky” levels, the government said, adding that residential property prices had risen more than what was justified by fundamental factors.

UBS and Credit Suisse, Switzerland’s biggest banks, both said this month that they were working on increasing their capital buffers and that the suggested increase would not change their plans.

Article source: http://dealbook.nytimes.com/2013/02/13/switzerland-to-require-banks-to-hold-more-capital-to-offset-mortgages/?partner=rss&emc=rss

Sales of Existing Homes Hit Six-Month Low in May

The National Association of Realtors said on Tuesday that sales slipped 3.8 percent month over month to an annual rate of 4.81 million units, the lowest since November.

It was the second straight month of declines. The drop was smaller than economists had expected, but the April sales figure was revised lower, leaving a report that was largely in line with expectations in financial markets.

While the fall in sales last month was partly a result of tornadoes and flooding, with sales in the Midwest and South hit the hardest, it underscored fundamental weakness.

“It’s indicative of the depressed housing demand that we have been seeing for some time, and that’s a function of the slow economic recovery and tight credit markets,” said Michelle Meyer, an economist at Bank of America Merrill Lynch in New York.

At May’s weak sales pace, it would take 9.3 months to clear the inventory of previously owned homes on the market. That is up from a nine-month supply in April.

The report was the latest to confirm a sustained weakness in the economy through the second quarter, which has been marked by a sharp slowdown in regional factory activity, soft retail sales and anemic employment growth.

But the smaller-than-expected decline in sales was yet another hopeful sign that the economy was set to regain momentum in the second half of the year.

In the 12 months to May, home resales were down 15.3 percent.

There were 3.72 million previously owned homes on the market in May, excluding so-called shadow inventory.

The month’s supply was the highest in six months and a supply of six to seven months is generally considered ideal, with higher readings pointing to lower house prices.

The generally weak housing market tone was underscored by the median home price, which at $166,500 was 4.6 percent lower than a year earlier. That compared with a 6.6 percent decline in April.

Article source: http://feeds.nytimes.com/click.phdo?i=d9d7539e1b50584cda8cdd9d89c1910a