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Is there any bubble in the housing market now

Confused, need to know

oddsock
post 2.Dec.2012, 12:15 PM
Post #91
Joined: 19.Dec.2008

QUOTE (Mib @ 2.Dec.2012, 11:34 AM) *
Oddsock...I used London as an example of location, location, location and in fact , it applies to most of the south east! It applies to Stockholm in terms of location...an ... (show full quote)

Location dictates price differences within a country. That's why Stockholm will always be relatively more expensive than Landskrona. But when prices go down nationally (remember, it's the same banks operating in both Stockholm and Landskrona) both places will go down in price. Stockholm will still be relatively higher than Landskrona, but both lower on an absolute level.

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You ignore the low cost childcare, which in a lot of countries is another mortgage almost...you ignore the generous parental leave, you ignore the extra akassa protection you get via a union, which many people are members of offering income protection up to 80%

I have no idea what these things have to do with the credit bubble.

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you ignore that the 30% tax relief means that the real interest rate is less than the actual rate, which is also negotiated lower with the bank than their advertised rate. You say that compounds the problem, but can be viewed another way that it takes the pressure off the payer.

When interest rates go up the amount of tax relief being claimed will go up (especially seeing that 80% of Swedes are on variable mortgages) and the government has to pay up. All that money comes out of the economy.

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You also ignore the extra regulations banks here in Sweden had to follow after the 90's credit crunch

Looking at the debt levels, I would say that these regulations did not work.

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You ignore that banks here CHECK that you can pay your mortgage at higher rates, because they WILL go up

Like I said, they do this in the Netherlands too. The problem there or in Sweden is not that people can't pay back their loans. I am not foreseeing a mortgage default problem in Sweden. When rates go up people will still be able to pay back their loans, but first time buyers will not be able to loan as much. And it is the first time buyers that determine the asking prices on the property market, because they are bringing in the new credit from the bottom of the ladder, which has to trickle its way up.

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you ignore that fixed rates are at historically low levels here in Sweden

A shame then that most Swedes are on variable rate, interest-only, 200 year mortgages.

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you ignore that there is a first in, last out rule, which gives people some sense of job security if you have been working a long at a company.

Like I said, I am not foreseeing a mortgage default problem. What I am saying is that credit levels are currently maxed out. And when credit is maxed out it cannot grow anymore.

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You ignore the minimum 15% minimum capital rule.

There are ways around this.

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You ignore that Sweden has a trade surplus and a low debt to gdp ratio, which gives it flexibility to affect the economy positively...just like it did in 2008/2009, which the IMF and others have postively commented on and led to Sweden being one of the first out of the recession.

Don't see how these will help credit levels to continue to grow unsustainably,. The low state debt-to-gdp may indeed help Sweden nationalise some of the bank debt when the shit eventually hits the fan.

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Whatever you think of Borg, at least he has a degree in the area he is responsible for! Of course that is no guarantee for anything, but at least he understands more than other previous incumbents.

He never finished a degree, he attended some lectures but spent most of his time hanging out at student unions and climbing his way up the political grapevine. Guy is a total bluffer. He says his goal is to keep the budget balanced year to year. Anybody with Microsoft Excel can balance a budget. Him letting the bubble continue to inflate on his watch would seem to demonstrate that he doesn't really get macro-economics. Or he does, but he realises that saying that house prices need to go down is political suicide.

I personally don't think there will be a classic house price "crash" in Sweden, but rather a slow and torturous correction. People are in a position where they don't need to sell (economy is in decent shape) and will try to hold out, thinking that prices will recover. First-time buyers will not have the money for those prices. So what you will see is the property market grinding to a halt, with loads of stuff for sale, but nobody selling and nobody buying. There will be a very drawn out decline in prices as the new reality takes a long time to settle in with current house owners. This is essentially what is happening in the Netherlands.

One could argue that a sudden, sharp correction in prices is ultimately better than a drawn out decline. But the government is doing everything they can to realise the latter scenario. The latter scenario is better politically, even though it is not healthy for things like mobility.
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Yorkshireman
post 4.Dec.2012, 01:10 PM
Post #92
Joined: 22.Nov.2011

One of the reasons Sweden may be different from the other countries that had bubbles burst recently could be the fact that 60% of all mortgage debt is held by the top 20% income earners. And the lowest income earners only hold about 3% of the debt. The high income earners are usually less likely to lose their jobs in downturns!

Add into that equation that the total cost of servicing those mortgages compared to disposable income, which over the last decade has remained approx 4%, coupled with low interest rates whilst increasing debt.

Here is a graph (I kew I had it somewhere wink.gif ) that shows Household assets and liabilities as a % of GDP, you will see that households on average have reasonable room to support a temporary downturn if needed.

Attached Image

I suspect that the reason Sweden has not seen the bubble burst like it did in other countries from 2008 onwards is because of a quick economic turnaround, continued salary growth, combined with the current governments tax cuts and removal of property taxes, lower interest rates ...all increasing disposable income in real terms. Whilst the banks at the same time were lending more freely. Basically, the government was proactive, not retrospectively acting. (we should be greatful it was the Moderates in power and not the socialdemocrats wink.gif )

Ever since the other EU Member States had price bubbles burst, the EU Commission has been pressuring Sweden to change certain policies to further/ensure a stable market. Some of those changes You see today, the 15% capital requirement, a continued move towards possible requirement for amortisation, more pressure to move to fixed interest rate mortgages ... and the one that renters should watch-out for ... a removal of the strict rent controls, because they distort significantly the market prices. The first part is the freeing up of BRF 2nd hand rents, but they are expected to go further and allow real market rents take hold (ie. they are too low).
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oddsock
post 4.Dec.2012, 02:41 PM
Post #93
Joined: 19.Dec.2008

QUOTE
I suspect that the reason Sweden has not seen the bubble burst like it did in other countries from 2008 onwards is because of a quick economic turnaround, continued salary growth, combined with the current governments tax cuts and removal of property taxes, lower interest rates ...all increasing disposable income in real terms. Whilst the banks at the same time were lending more freely. Basically, the government was proactive, not retrospectively acting.

Well, yeah, this is what I have pointed out. The bubble didn't burst because they chose to inflate it further instead.

It's called kicking the can down the road and/or buying re-election.
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ThePassenger
post 4.Dec.2012, 05:20 PM
Post #94
Location: Uppsala
Joined: 9.Nov.2012

Indeed, every country is a unique case but markets work under the same, more or less, rules. Worldwide the first sector that gets hit, when destabilization approaches, is construction.

http://www.arkitekt.se/s75276

In Sweden it's not the small (private) loans that really count but the big players: and they started getting "no-no"s from banks...
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wondering
post 4.Dec.2012, 06:21 PM
Post #95
Joined: 3.Oct.2011

http://www.dn.se/ekonomi/ratt-att-ta-ut-ho...a-vid-uthyrning

The right to increase the rents to cover the costs of the housing have gone through now in Riksdagen.

This actually raises the bubble a lot now because more people who were on the fence regarding buying will now scrape the money together to actually buy something.

I expect house prices to go up now.

Opinions anyone?
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Yorkshireman
post 4.Dec.2012, 07:08 PM
Post #96
Joined: 22.Nov.2011

QUOTE (oddsock @ 4.Dec.2012, 02:41 PM) *
Well, yeah, this is what I have pointed out. The bubble didn't burst because they chose to inflate it further instead.

It was the fast recovery that was not expected, the measures were put in place to both stimulate the economy, and also to protect property owners from a big drop in prices. There was a price dip, which recovered, and lending did slow down.

QUOTE (wondering @ 4.Dec.2012, 06:21 PM) *
This actually raises the bubble a lot now because more people who were on the fence regarding buying will now scrape the money together to actually buy something. . I expect house prices to go up now.

It shouldn't increase property prices, these kinds of measure are used to close the gap between renting and buying, the probable rise in rents that result will help stablise price rises in property. And it doesn't really go far enough, the BRF lobbies were obviously strong enough to resist the original requirement that the legislation include the removal of BRF approval for 2nd hand renting... one will still need a reason.

Next will be normal rental properties, it is likely they will make a play to raise rents simultaneously in the areas where apartments are in demand, eg. Stockholm Center etc... They haven't yet pushed, but it looks likely they will try to use the clause in the Bruksvärdet determination ..."Också faktorer som husets allmänna läge, boendemiljön i stort och närhet till kommunikationer påverkar bruksvärdet.", they will allow some rents in less popular outer city areas come down, but inner city go up significantly (15%+).
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oddsock
post 4.Dec.2012, 08:37 PM
Post #97
Joined: 19.Dec.2008

QUOTE (wondering @ 4.Dec.2012, 06:21 PM) *
http://www.dn.se/ekonomi/ratt-att-ta-ut-ho...a-vid-uthyrning The right to increase the rents to cover the costs of the housing have gone through now in Riksdagen. This actuall ... (show full quote)

It wouldn't surprise me, the government is trying every trick in the book to prop up house prices. It will only make the eventual fall even bigger, but I guess they are playing politics and handing the fall to the next government.

Moderarterna made some tough decisions last time the property market was overheated in the early 90s. They slashed mortgage relief and deflated the bubble very quickly. It was the right decision but it put them in opposition for 12 years. This time they've learned to put their own survival ahead of the country's interests.
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wondering
post 5.Dec.2012, 12:38 PM
Post #98
Joined: 3.Oct.2011

http://www.bloomberg.com/news/2012-12-05/s...gest-worry.html

Sweden’s housing market probably faces “some sort of adjustment,” Michael Wolf, Swedbank AB (SWEDA) chief executive officer, said in an interview at the bank’s headquarters in Stockholm yesterday. “You are seeing it gradually as we speak. I am not concerned about a house bubble -- I am more concerned about the debt level.”
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oddsock
post 5.Dec.2012, 02:06 PM
Post #99
Joined: 19.Dec.2008

You know things are up shit creek when one the CEO of a major Swedish bank openly says something like that.
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oddsock
post 5.Dec.2012, 02:20 PM
Post #100
Joined: 19.Dec.2008

Also from that link:

QUOTE
Sweden has responded by requiring its banks, which control assets more than four times the size of the $550 billion economy, to meet stricter capital standards than those set elsewhere.

Yes, Sweden's bank assets are 400% of Swedish GDP.

To put that into perspective, the Swedish bank rescue in the early 90s involved the state buying up 25% of Swedish banking assets. It cost 4% of GDP at the time. Today it would cost 100%.

That will tell you how much the financial sector has mushroomed.
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Beavis
post 5.Dec.2012, 05:00 PM
Post #101
Joined: 2.Mar.2008

c
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