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Riksbank rejects Swedish housing bubble fears

Riksbank rejects Swedish housing bubble fears

Published: 05 Apr 2011 17:44 GMT+02:00
Updated: 05 Apr 2011 17:44 GMT+02:00

The last few years have seen a rapid growth in housing prices in Sweden and there have been worries that the bubble is about to burst.

But in a report published Tuesday the Riksbank attributed the rapid growth to ‘natural developments’.

“The income development of Swedish households has been good, interest rates have fallen and the supply of properties has not increased much," the Riksbank wrote in its report.

Nevertheless, there are no indications that the market will slow down and finance minister Anders Borg showed some concern regarding recent developments in Sweden's residential property market.

“The housing market seems to have entered a more stable stage, but we will have to keep an eye on what happens in the near future,” Borg said to news agency TT.

He pointed out that certain measures already had been taken such as amortization requirements, mortgage ceilings, and some increases to interest rates.

Borg also indicated that more funding might go to the Swedish Financial Supervisory Authority (Finansinspektionen) to keep banks in order.

“We certainly have reason to take a closer look at the Financial Supervisory Authority's resources. We've found ourselves in a situation with a very good financial supervisory system and they've also have shown themselves to be ready to take tough decisions, but in an international perspective and when it comes to resources they can be seen as undersized,” Borg told daily Dagens Nyheter (DN).

According to SEB analyst Elisabet Kopelman, it would have been surprising had the Riksbank announced the existence of a housing bubble in Sweden. However, she said that the bank is concerned about developments on the housing market.

“I don’t think this is going to have an effect on monetary policy in the near future. At the same time it is clear that the Riksbank will continue to monitor this closely,” she said to TT.

But the Riksbank's new report did little to assuage the fears of Bengt Hansson, an analyst at the National Housing Credit Guarantee Board (Bostadskreditnämnden).

He believes housing prices will fall by 20 percent in the near future.

“There has been a bubble for a few years now. What we are waiting for is the shock that will make prices go back to normal,” he told TT.

TT/The Local/rm (news@thelocal.se)

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Your comments about this article

18:14 April 5, 2011 by Nemesis
Just run that statement by anyone from Ireland.
19:04 April 5, 2011 by Muff
Did anyone seriously think that they would say something like ''Yes, there are signs of a housing bubble.''?
21:46 April 5, 2011 by Mib
A housing bubble is burst by growing unemployment and rocketing inflation and high interest rates in combination with low demand and high supply.

Only an idiot cannot see interest rates rising further and combined with a ceiling on the amount one can borrow and the property prices will probably flat line or dip a little. Just like in the UK, demand outstrips supply, which has been worsened by the lack of new builds during the credit crunch. So, while prces have in general gone down....good quality properties ie. not crappy flats in locations where employment and transport links are good are still maintaining their prices. It's a similar situation in Sweden, but banks are kending, while in the UK it is much more difficult. Unemployment is going down in Sweden, so demand will continue.

Ireland is BANKRUPT...it has massive oversupply of property and borrowing is very ifficult as the banks need the money more than their owncustomers. That is the MAIN difference and hence why my cousins house and others have halved in price! So, you must be blind if yu can't see the obvious differences between Ireland and Sweden.
08:21 April 6, 2011 by hocarroll
I'm Irish and have recently emigrated to the US because of the economic implosion caused by 'our' greedy bankers', developers', political elite's obsession with property speculation.

I'm far from an expert on the Swedish property market but the above article reads eerily like the utterances of the Irish Central Bank and Irish Banks before our crash....."Don't worry, it will all be fine, the fundamentals are sound"

Two pieces of property advice:

1. Never get your information from vested interests

2. When assessing a property's real value, always compare the cost of ownership per month and the monthly rental value of the same property (i.e. Mortgage Repayment Vs. Rent)

I'm sure you Swedes are less susceptible to irrational exuberance but be careful. However, take it from me, the results of a property crash can be devastating in human terms so its worth being cautious.

'Act in Haste, Repent at Leisure'.... as the old saying goes

Hejdå
09:31 April 6, 2011 by Gordy
And another other old saying - Never believe anything until it's been officially denied!

"He pointed out that certain measures already had been taken such as amortization requirements, mortgage ceilings, and some increases to interest rates."

Ask yourself why are they taking such actions if there isn't a problem?

If property prices were following a normal development surely there would be no need to take such measures and certainly not on three different fronts.

The fact that it is considered normal that many mortgages have a large interest only element so that buyers can afford the repayments should be red flag enough that property prices are too high. Ahh the madness of crowds!

It is totally unfair however to compare the Swedish market to the Irish one. The Irish bubble was the mother of all madness, with 25% of the entire economy relating to the building industry at the peak of activity.

The Swedish situation has more to do with a dysfunctional housing market which forces people to queue for years to get an apartment for rent and where there are very few houses available to rent, so if you want to live in a house rather than an apartment you are almost forced to purchase.

The bulls of course argue that property prices always go up. That is true in the long term, but over shorter time frames prices can rise considerably above the long term trend and that is where we are now I believe. A reversion to the long term trend is inevitable the question is only when and how this will occur.
09:32 April 6, 2011 by Nemesis
@ hocarroll,

Spot on.

I live in a small town in Skåne in southern Sweden, which has a high building rate and local kommune (city council) planners getting work started on doubling the population of the town. They did that once before and it took almost 15 years to get the apartments filled.

Sweden had a crash before in the 90's which almost broke the country. The exaact same press statements were made. Bailouts from Germany, Norway, Denmark and a whole host of lesser loans from other countries stabilised Sweden. Sound familiar.

Also recently when Swedish leaders went to Davos, the speeches afterwards prasising Sweden were almost a case of taking speeches about Ireland in 2003, copying and pasting them, then changing the politicians names and countries.

They are heading right back in that direction.

They did do one thing right in Sweden recently, they made sure that a person has to raise 20% of the cash price of a property before they get a mortgage. The mortgage ceiling is now 80%, but I think it is to little to late.

Youth unemployment is through the roof. They massage the figures by circulating the young unemployed in and out of various work schemes.

Food prices are insane in Sweden, even higher than Ireland. Inflation is clearly on the high street and the currency is way over valued.

People claim that unemployment is dropping in Sweden. Ask anyone with an 18 to 30 year old son or daughter. They will tell you very different.

Older people are retiring and not being replaced.

There is problems on the horizon for Sweden.
11:32 April 6, 2011 by joolzg
i also live in Skåne and as an englishman ive been looking to buy instead of renting but what i cant believe is the rise in prices, it has to stop soon.

Only last month my wife and i went to look at a smallish house, less space than our flat, priced around 2.8M Sek.

To me it was not worth it, but guess what the 1st offer was, 3.2M Sek

The prices have gone stupid and as i own a property in the uk i know what happens when these price rises and then a nice interest rate hike does to people whom are borrowing to their limit.

joolz
12:56 April 6, 2011 by Mib
From my experience, the banks here will check to ensure that you can afford the repayments at higher rates than the current level. Also, I think the message has been made VERY clear by Riksbank, that interest rates will increase over the next 2 years at least. So, anyone who buys a property not knowing that is either paying cash or stupid.

But there are crazy people in every country and sometimes people will pay over the odds to get a property they really want and not to make money on. Property prices in Sweden have been much cheaper than in other countries in comparison. If you try to buy a nice home in England, the prices are still way over the odds. While London is a special case, the prices in Stockholm look very cheap in comparison, especially when you compare the quality and other costs.
15:49 April 6, 2011 by zeero
I want to see them try and buy or rent a place today...
19:22 April 6, 2011 by Swedesmith
"All is well," saeth the emporer. "Hand me my fiddle."
00:15 April 11, 2011 by Schwoebel
The people denying the housing bubble aren't the ones put in the impossible situation of needing to come up with 20% downpayment on a house.....

Instead the 18-30 crowd is stuck paying stupid amounts of money to housing companies for diddly squat in return.

The person who heads this board most likely owns a few housing properties.
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