Swedish housing bubble soon to burst

25 Nov, 2017 at 14:59 | Posted in Economics | 4 Comments

High and rising household indebtedness poses the greatest risk to the Swedish economy. Household indebtedness has been increasing in Sweden since the mid- 1990s. Home ownership financed by high levels of mortgage debt with variable interest rates makes households vulnerable to falling house prices and increasing interest rates …

swedish-household-debt-as-perc-of-disp-income-to-2013In the present Economic Commentary, we extend the earlier analysis by using updated data covering the period up to September 2017 … Our main findings can be summarised as follows:

1. Household debt continues to increase faster than income. The average DTI ratio increased from 326 per cent in September 2016 to 338 per cent in September 2017.
2. More households have high debts relative to their income. In 2017, 260 000 households had a DTI ratio exceeding 600 per cent. This is an increase of 27 000 households compared to 2016.
3. Household indebtedness is increasing for all income groups and age groups.

Sveriges Riksbank

House prices are increasing fast in EU. And more so in Sweden than in any other member state. Sweden’s house price boom started in mid-1990s, and looking at the development of real house prices during the last three decades there are reasons to be deeply worried. As even The Riksbank now admits, the indebtedness of the Swedish household sector has risen to alarmingly high levels.

Yours truly has been trying to argue 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.

Housing-bubble-markets-flatten-a-bit-530

The Swedish housing market is living on borrowed time. It’s really high time to take away the punch bowl. What is especially worrying is that although the aggregate net asset position of the Swedish households is still on the solid side, an increasing proportion of those assets is illiquid. When the inevitable drop in house prices hits the banking sector and the rest of the economy, the consequences will be enormous.

It hurts when bubbles burst …

4 Comments

  1. I would not be so sure. Since the first bank crash, central planning for the municipalities in Sweden has enforced a policy of demolishing houses. This has been going on for 20 years and now there is a shortage of houses in every municipality in Sweden. The new rental apartments that are being built have ridiculus rents, rents that would allow condominiums to rise to around double of what they are today and still look lika a good deal for the prospecting renter/condominium-dweller.

    But the housing bubble in sweden is 100% planned political economy in order to stop the banking system from collapsing.
    https://www.boverket.se/sv/om-boverket/publicerat-av-boverket/publikationer/2005/statens-stod-for-kommunala-bostadsataganden-1998-2005/

    From this documents it is clear that one of the purposes is to increase the housing prices.

    The banking system is maintained by planned political economy and government intervention in every country on earth. In Sweden the system of bailing out banks is so normal that we couldn’t even read in the news that we saved one of our biggest banks from bankrupcy in 2007. Bailing out banks is just a matter of course nowadays.

    But when the baby boomers die, then we will have an everything bubble. (Ofcourse the housing bubble will burst as we start moving them in to nursing homes in just a few years.)

  2. Raising interest rates just places more stress on mortgage holders with adjustable rates, causing defaults and panic and possibly falling prices. Financiers have hedges, as they had in 2008, but the insurance piece was immature then. In any case we know how to fix a liquidity crisis: create more public money. Instead of manipulating interest rates, set them at zero forever and create virtual property, like bitcoin, for investors to move into and away from land …

  3. I know nothing of the particulars of the Swedish housing situation except what you tell me. What I would say in general is that public policy ought to aim at accurate and stable price formation, with risk borne efficiently by mechanisms like portfolio diversification. If the regulation of the process of granting mortgages allows house prices to depart very far from household incomes, something is wrong.
    .
    The habit of talking as if prices are formed in magic markets is demented. The mechanisms by which house prices are formed can and should be investigated critically by economists and good design and practice prescribed. Clearly the mechanisms of credit drive house prices and when those mechanisms are ignored and allowed to malfunction, that is a serious threat to social welfare. This is unlikely to be remedied by manipulating headline interest rates or floods of liquidity.
    .
    There may be nothing for Sweden now but a crisis, but if the crisis is to be useful for purposes of reform, it is necessary to think about mechanisms by which prices form.

  4. at what time and on what day. This prediction is getting long in the nose


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