In a regional report on Europe, the International Monetary Fund (IMF) notes that property markets are showing increasing signs of overvaluation across the region, pointing to five countries as examples of this scenario.

"House prices have doubled since 2015 in the Czech Republic, Hungary, Iceland, Luxembourg, the Netherlands and Portugal," the report said.

The IMF experts point out that "since the pandemic, the divergence between house prices and incomes, and between house prices and rents, has increased even further."

According to the Bretton Woods institution's accounts, house price-to-income ratios currently stand at more than 30% above long-term trends, while house price-to-rent ratios also far exceed historical norms, including in economies in Northern Europe or emerging European countries.

The IMF indicates, in this sense, that empirical models point to an overvaluation of 15-20% in most European countries, but with bank rents still rising and real incomes being hurt by inflation, "house prices have recently fallen in many markets."

In the same analysis, it also points out that the increase in the cost of living and the benefits to the bank of the houses are "stretching" the family balance, which can deteriorate even more if there are more adverse shocks.

In adverse scenarios with higher costs of living and higher benefits, about 45 percent of households and more than 80 percent of low-income households could face greater economic hardship.

Still, the IMF believes that "impacts on banks' balance sheets should generally be contained," but considers that this "picture gets darker under a combination of shocks, including a major correction in house prices."

"Under the Common Equity Tier 1 standard, the capital decrease from the increase in household debt default would not exceed 100 basis points in most countries, but a 20% slowdown in the housing market would increase losses to a range of 100 to 300 basis points, with Southern and Eastern European countries being the most severely affected," Adds.

In this scenario, such losses can lead to tighter credit standards, increasing the assumptions and adverse cycles between banks' balance sheets, real estate prices (and other assets) and the real economy.