The International Monetary Fund has said continued interest rate hikes by central banks around the world will cause serious housing problems.
The Washington-based lender said so in a new report titled “Interest Rates Rise in Volatile Markets, Signal Rising Financial Stability Risks.”
The report says the ailing real estate sector in many countries is raising concerns about risks that could spread and spill over to banks and the macro-economy.
He further noted that risks to housing markets were increasing due to rising mortgage rates and tightening lending standards, with many other potential borrowers now being squeezed out of the markets.
According to the IMF, stretched housing valuations could adjust sharply in some segments of the market.
The report said in part: “Emerging markets face a myriad of risks, including high external borrowing costs, stubbornly high inflation and volatile commodity markets. They also face heightened uncertainty about the global economy and tighter policies in advanced economies.
“Strains are particularly severe in frontier markets, typically smaller developing economies where challenges are driven by a combination of tighter financial conditions, deteriorating fundamentals and high exposure to commodity price volatility. .”
He noted that investors had so far continued to differentiate between emerging economies and that while many frontier markets were at risk of default, many of the largest emerging markets were more resilient to external vulnerabilities to date.
“That said, after outflows stabilized in the first half of the year, foreign investors are pulling back again,” the report said.
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