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Sweden has housing bubble: politician

Published: 24 Jul 2011 10:30 GMT+02:00
Updated: 24 Jul 2011 10:30 GMT+02:00

Falling housing prices in Sweden, coupled with a shrinking turnover on the housing market and rising interest rates are increasing the risk of a possible housing bubble, writes Tommy Waidelich, the Social Democrats' economy spokesman, in an opinion piece published in newspaper Dagens Nyheter.

"A drop in house prices would hit growth, employment and state finances," writes Waidelich, who also expresses concern for indebted families, who would be hard struck by a burst bubble.

Waidelich cites Nobel laureate Joseph Stiglitz's definition of a bubble, claiming Sweden's housing market is at risk of experiencing these conditions.

"If the reason that the price is high today is only because investors believe that the selling price will be high tomorrow – when ”fundamental” factors do not seem to justify such a price – then a bubble exists.”

Waidelich criticises the governing centre-right Alliance for several policies that he feels have worsened the situation on the housing market, such as the lowered housing tax, the ROT tax deductions for building, and the insufficient amount of new apartments built.

"Inflated housing prices are a global phenomenon, but several points of the government's economic policies have fueled this problem," he writes.

In order to soften the blow from falling prices, however, Waidelich is open for cooperation over party lines. He also suggests that subletting apartments should become easier.

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

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Your comments about this article

13:52 July 24, 2011 by canuk
this is not rocket science, the drop in prices is a result of the 15% down one must now do to secure a mortgage...
18:58 July 24, 2011 by bjorkon
Prices have hardly fallen yet .. and most banks are only too glad to lend you the other 15% unsecured at a higher rate of interest. But since this is the only part you really have to pay off in full you have another reason for the bubble. As long as they dont change the rules too much or whack up interest rates or China goes pop (which it ight be soon) and Swedes lose too many jobs i will carry on inflating.
21:15 July 24, 2011 by Abe L
Canuk already touched base on one of the biggest problems in Sweden today. The enormous downpayment you need to make when you wish to pursue getting a mortgage for a house. In addition to the 15% downpayment there are another few taxes that you need to pay that combined make up almost another 5% of the property's value.

The government would do well by scrapping those taxes and force banks to hand out 100% mortgages according to your solvency. It's very hard to save up money in Sweden simply because the government likes to strip you off every penny you earn. If they can't change the current situation accordingly, there should be a tax relief for those wanting to save up to buy a house.
21:26 July 24, 2011 by DamnImmigrant
This is such a non-issue except to people trying to sell right now.

The price goes down, then the price goes back up. The only people who loose are the people who do panic selling. Patience is the key word with investments.
21:40 July 24, 2011 by Acero
DamnImmigrant, you bloody damn immigrant 'ya! Of course this issue affects more than the people who are trying to sell right now! A housing bubble affects most of a generation ...ok, it might only be the people wishing to sell who loose in real and nominal terms at that given time but the prices fall for a reason, and the ones who are still paying for over-priced housing, are being crucified by high repayments.

When house prices fall it is generally in conjunction with a slow down in economic growth AND activity. meaning people arent paid the sort of bonuses they WERE getting etc etc and ya would generally have more (if even only by point zero percentages) people unemployed.

(love that name!!)

Abe....although your argument was good.....you made the cardinal sin of saying that the banks should hand out 100% mortgages. Never ever should this happen. Purchasers have to learn to save when buying such a large valued asset. The higher the downpayment, the more realistic the house prices will be.

A 100% mortgage takes the value of the property out of the equation and solely looks at ability to repay.

Where as when you have a deposit to put down on a house, it reflects a genuine monetary level. Which the market will dictate never becomes exorbitant.

When china goes..say good buy to australia and vancouver. two of the worlds worst housing bubbles
12:53 July 25, 2011 by Nemesis
100% mortgages lead to US style bankruptcy of the entire country.

100% mortgages should never be allowed.
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