Swedish housing bubble

2 Jul, 2013 at 11:16 | Posted in Economics, Politics & Society | 8 Comments

dragonOne of Stockholm’s most popular attractions is a guided tour of the Soedermalm district streets featured in Stieg Larsson’s bestselling book “The Girl With The Dragon Tattoo.” Buying a home in the former working-class neighborhood is far less accessible.

A one-bedroom, 55-square meter (592-square feet) apartment in Hoegalidsgatan, in the neighborhood where Larsson’s troubled heroine Lisbeth Salander grew up, sold last month for 3.75 million kronor ($569,000), 17 percent above the listing price, after a bidding war involving nine parties.

That level of demand is typical in the Swedish capital, where a shortage of construction, a population boom and mortgage rates below 3 percent have pushed prices in central Stockholm up 35 percent since early 2009. Borrowing for home purchases has in turn fueled record household debt across the country. That’s sparking concern among policy makers over potential damage to the economy and preventing the central bank from cutting rates, even as Sweden’s exporters say action must be taken to weaken the currency to protect thousands of jobs.

“If you combine low home construction with good access to financing, prices will rise,” Riksbank Governor Stefan Ingves said in an interview in Stockholm on May 27. Sweden needs to “in one way or another increase the supply of homes since we’ve had very low home construction for a very long time,” said Ingves, who’s warned about the risks of rising household debt.

With the three-month home loan rate at Sweden’s largest mortgage lender Swedbank AB (SWEDA) at 2.94 percent, its lowest level since November 2010, apartment prices across the country have jumped 11 percent in the past 12 months …

That’s left the Riksbank struggling to contain the growth in debt, which has reached a record average of 174 percent of disposable incomes. The International Monetary Fund last month recommended Sweden increase mortgage restrictions to prevent a housing bubble and stop consumer debt from spiraling out of control. At the current pace of amortization, Swedish households will need 140 years on average to repay their home loans …

A government report published in December last year concluded that Swedish law, including regulation on rent levels that sets similar rents on apartments of similar models with little consideration to their geographical location, has contributed to the lack of rental housing in the country.

“The market conditions that lead to uncertain profitability calculations have inhibited willingness to invest in rental housing even in areas with high demand and have made other investment options more attractive,” it said. “It has only been possible to realize the land-value through conversions from rental accommodation to tenant-owned housing” …

At the Riksbank, soaring debt levels, income inequality and home prices aren’t the only concerns. Sweden’s export-reliant economy is also suffering from slumping demand in the wake of the debt crisis in Europe, to which the country ships about 70 percent of its exports. Exacerbating the problem is the krona, which has soared 26 percent against the euro since March 2009 after Sweden became a haven from Europe’s fiscal woes …

So far, the Riksbank has argued it has little choice but to keep interest rates at 1 percent, given the potential effect a cut would have on household debt and property prices.

While measures such as capping mortgages at 85 percent of a property’s value have helped slow borrowing growth from levels above 10 percent between 2004 and 2008, household lending still expanded by an annual 4.6 percent in April. The Riksbank forecasts that private debt as a percentage of disposable incomes will jump to 177 percent in early 2015 …

Swedes aren’t showing much indication they’re losing their appetite for buying property. A survey by SEB on June 10 showed that 55 percent believe house prices will rise in the coming year, while 17 percent said they expect a decline …


This interesting and worrying report confirms what yours truly wrote back in April on this blog.

The increase in house loans – and house prices – in Sweden has for many years been among the steepest in the world.

Sweden’s house price boom started in mid-1990s, and looking at the development of real house prices since 1986, there are reasons to be deeply worried:

Source: Statistics Sweden and own calculations

The indebtedness of the Swedish household sector has also risen to alarmingly high levels, as can be seen in the figure below (based on new data published earlier this month by Statistics Sweden, showing the development of household debts/disposable income 1990 – 2012):

Source: Statistics Sweden and own calculations

Yours truly has been trying to argue – for two years now – with “very serious people” that it’s really high time to “take away the punch bowl.” Mostly I have felt like the voice of one calling in the desert, and up until now neither the Swedish central bank, nor the government, has been willing to listen. Compairing the above figures with the one below (source) could perhaps give some refreshing perspective …


  1. Think that in most European countries it’s a requirement to pay off one’s mortgage in 20-25 years. So, why not in Sweden?

  2. Yes, prices are overrated in Sweden. In my town, Lund, which is a University city of 110.000 people with a fairly low unemployment rate, an old town house of 120m2 with no garden was sold to a price of 5 million sek (~754.000 dollars)

    Incredible if you ask me.. But times are changing.. even though the rent is historically low, people are beginning to worry and the young at 25 are beginning to save some money in the bank. We live in an inflated world. Money and assets are far to separated, and since the late 90’s it has just been “full throttle ahead”. After the recession i thought we would get wiser, but it seems the bankers and politicians are making it worse.

    I can’t see how the world (with Peak oil, increasing population, lowering growth rates in China and India, future limitation on water and food, mass migration, and so many countries in huge debt), can avoid another global recession.. If that happens, the US and EU cannot afford to create more debt, teh dollar and euro will devaluate and the interest will will go up. And hopefully we can get back to a more “resource based” economy, not FIAT-money an speculation.

    Yes maybe oil prices will go up, and so what,, this might put a limit on import from far east asia etc, and bring back some production to these parts of the world.

  3. In the absolute sense, your houses are not too expensive for Europeans. But isn’t it strange that the prices of fritidshus (even of the ones with just a 1000m2 tomt) surpass the prices of regular houses in comparable locations, with a comparable tomt/garden? And for that price you have to sit in an utedas or empty your mulltoa… instead of enjoying the tap water and a sewer connection of the regular house of 1500 kSek. So I changed my search strategy on Hemnet.

  4. Sweden gets more backward by the day. Reinfeldt leadership idea is to just keep silent,, the opposition have not got a clue?… Dull country where nothing happens….
    so hopefully interesting times lie ahead…

    • Sweden is a disappointment:.high unemployment, housing boom (but it began about 2000, not in 1995). Ambitions lost – farewell to wellfare state?

  5. Thanks for your article and once more pointing out Sweden largest political and economical issue.
    Its funny: Right now ALL Swedish political leaders are gathered at Almedalen in Gotland. They talk about all kinds of small problems, but this is taboo. Its taboo because any politician proposing firm action is politically dead. Its as taboo as the failed immigration and integration policy.

    • I’d like to add the failed energy situation to the list. Not only that they are ignoring peak oil, but pretending that windmills and solar is a viable option for a competitive industry. Sweden needs modern nuclear plants or its industry will continue its slow death.

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