Home > Uncategorized > Swedish housing bubble soon to burst

Swedish housing bubble soon to burst

from Lars Syll

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.


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 …

  1. F. Oeseburg
    November 27, 2017 at 6:43 pm

    And what are the authorities (Central Bank and Ministry of finance) doing?

  2. November 27, 2017 at 10:24 pm

    “Yours truly has been trying to argue with ‘very serious people’ that it’s really high time to ‘take away the punch bowl.’ “

    I’m curious to know if what you are recommending is simply a move to jack up interest rates on all lending, or something else?

    I ask this because I’ve noticed that what is driving the real estate bubble in the United States is not just cheap credit, but rather cheap credit being available to speculators who are driving up prices with their practice of “flipping” houses. I.e., they buy houses with no intention of living in them, but rather with the intention of selling them a few weeks or months later for a profit.

    What this has turned this practice into a very nasty bubble situation is the fact that, increasingly, the people who are buying from these speculators are other speculators who intend to do the same thing that the selling speculator did, sell it for a short term profit a few weeks/months later.

    What is driving this unhealthy situation is not cheap credit availability overall, but rather cheap credit available to speculators, who usually have a pristine credit history and lots of money to spend on loan payments. To the banks lending to them, they are very low risk borrowers, so there is no hesitation to lend to them.

    The answer to this problem, as I see it, is credit controls that are intended to limit the participation of speculators in the markets they’ve targeted, by making the interest rates they are charged so high that the whole ploy becomes prohibitively expensive to them.

    For “normal” people, who are simply looking for a damn house to live in, interest rates can be kept at affordable levels. This would, I suggest, put an end to the bubble without crashing the housing industry and possibly also the entire economy, as well.

    Do you know if this sort of proposal would be effective in Sweden’s situation?

    • mikael
      November 28, 2017 at 10:48 am

      No. In Sweden cheap credit is the real reason.

      There was not so many speculators buying to just sell later, mostly because it is risky, as you cannot rent out the space in the meantime (renting out apartments is limited to 6 months or a year and you need approval of the other ownsers in your building, and a good reason, like working abroad).

      The real problem is that Swedes used to take loans over super large periods (more than 50 years, or even unlimited) and just pay the interest. So obviously when the interest rate goes down you suddenly can borrow much MUCH more, so it puts a super high pressure on price.

      Then is was just the typical bubble, where everybody rushed to buy because everybody was so convinced prices were going up.

      Now the market has turned, and prices have fallen in the last 3 months. In that situation obviously nobody wants to be the stupid person buying if the price are going to fall in the next months so I expect the prices to go down during a few months.

      There is also a new law expected for next year to limit the amount you can borrow and force you to pay back a larger part of the principal.

      If we see in addition some interest raise next year, then the bubble could really burst.

      I however fear that political forces will try to not have the burst because it could be really bad in an election year so they might just give up on the legislation and push for maintaining interest rate so in that case prices would just slightly go down and the real burst would have to wait a bit more.

      • Risk Analyst
        November 28, 2017 at 5:30 pm

        Instead of doing credit controls through interest rates, I was intrigued by Vancouver, Canada, imposing a 15% transactions tax on the foreign, mostly Chinese, money flowing in and bidding up the housing prices. The last I heard, the prices there have stopped rising and actually fallen compared to other cities without such a tax. To address domestic speculation, this tax could be imposed instead on someone’s non-primary residential properties or maybe have such a tax imposed if the house is sold within a short time. I have no idea if such things were discussed in Sweden but the Vancouver situation seems to have been taken care of nicely.

      • November 28, 2017 at 7:00 pm

        “Instead of doing credit controls through interest rates, I was intrigued by Vancouver, Canada, imposing a 15% transactions tax on the foreign, mostly Chinese, money flowing in and bidding up the housing prices.”

        I like it. One way or another, “government” needs to step in and make the cost of leveraged speculation too expensive to attempt. Banks don’t give a damn about who they lend money to, so long as they are good credit risks, and that is the problem.

        I emphasize credit controls because I think they are the essential tool that any central bank can use to fight off “accelerating inflation” when the economy is operating at full capacity without throwing the economy into a recession.

        If central bankers were to use this method to control the number of inflation dollars/pounds/euros/yen being pumped into the economy by lending institutions, we could finally begin to eliminate all unemployment once and for all…

  3. Ctesias62
    November 29, 2017 at 6:01 pm

    Uk is even worse courtesy of the most incompetent Chancellor of Exchqr since Churchill, George Osborne.

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