The Unassuming Economist

“Housing prices have increased rapidly in recent years, raising concerns that the market may be undergoing a bubble. House prices have nearly doubled in real terms over the last decade, equally for subsidized and commercial housing, and are almost 40 percent above their peak in 1996. The price hikes have outstripped increases in construction prices and were mainly driven by a rising trend in the capital and two other large cities. However, the increase in housing prices has been less pronounced after adjusted for income levels and the quality of newly constructed housing. House price increases have also surpassed rental increases (…). However, household income has also increased strongly in the recent decade, alleviating the burden of mortgages on households and boosting demand for housing,” says the latest IMF report on Colombia.

Moreover, the report says that: “The exposure of households and the financial sector to house price developments continues to be low (…). The growth of mortgages in banks’ loan portfolios remains high, although it has slowed marginally to 17.3 percent in real terms in September 2014. Credit risks are, however, mitigated by a low overall stock of mortgages (about 10.5 percent of total loans), conservative provisioning, and lower housing finance interest rates, which are capped to the lowest rates prevailing for other type of lending. Banks have also been moving towards greater amounts of fixed rate funding for mortgages from variable rates, which should strengthen profitability in a low interest rate environment. Moreover, housing loans extended in recent years have shown less deterioration compared to those made in the past. At 17.5 percent of GDP and 28 percent of disposable income, household debt is moderate, and debt service-to-disposable income is low (9 percent). Although slightly higher than a year ago, LTVs remain low (52 percent).”