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Moody’s Warns that the Decrease in House Prices will be Bad News for the Banks

The effects of the Covid-19 crisis will push down house prices over the next 12 to 18 months, demand will drop significantly, and banks will have to deal with more defaulted payments.

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The housing market in Spain has started to cool off, as reflected by the 0.8% drop in the price of residential assets during the first quarter of 2020, the first decrease in almost four years. However, this price fall does not only affect the real estate sector, it is also bad news for the credit profile of banks, which will have to deal with more defaulted payments and greater capital needs, whilst their ability to grant a greater volume of mortgages will be reduced, according to the ratings agency Moody’s.

The ratings agency anticipates that the coronavirus crisis “will push down prices over the next 12 to 18 months.” Likewise, it forecasts a significant drop in demand for housing as a result of an increase in unemployment, which may negatively affect the quality of assets in portfolios.

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