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Is there any bubble in the housing market now

Confused, need to know

Gchinese
post 23.Jul.2012, 10:50 AM
Post #1
Joined: 20.May.2006

Hi, I am in a position now that I have to get myself somewhere to live, a bit more stable after having been forced to move once in a couple of years in the past years. I got a good job now so I can afford a decent apartment at least somewhere outside the stockholm.

Since I've never been to this arena of purchasing some real estate in sweden, I am a bit scared. I have very few friends who really know anything about this either. It is a huge decision to make, so I feel i want to be cautious.

Many people say there is a huge bubble in the housing market. Recession is going to come. Price will drop dramatically. That scared a lot out of me because living alone in a foreign country, I do not want to end up in a huge debt. But in the meantime, as I can see the housing only goes up in the past 5 to 10 years, or even back to 30 years. I have a colleague who started with a tiny little apartment in Södermalm, sold it in a few years, got another one, sold it again, the prices only got higher and higher and she sits there claiming the profit - in the form that she could afford to move into bigger and bigger apartment in the same area. I have another friend who bought a fancy apartment in the inner part of the city for 2,8 million 5 years ago. Today it worthes 5,5 million (bubble? maybe) but if she sells it now, she would earn more than double of her investment.

I am not speculating on any investment. I just need a stable, nice place to live really, a place I can call home. So I am eager to purchase something within my budget. But most people around me seem like think the same thing - the housing is over priced, soon there will be crisis, interests will go up, people will loss their jobs, property prices will go down, to as much as 30 to 50%... wow, that is scary.

Just want to hear your opinions on this, and even where to buy. People say it is the safest to purchase in stockholm inner city. Yes, it would be the best. And according to the banks software calculation, I would be able to afford some small apartment in the inner city (I mean I would be able to put down the required first installment and the monthly cost), but still I could not get the loan from the banks because they say they can not loan me more than 5 times my yearly salary. Hopeless, frustrated and confused, I would like to hear your experiences, advice, opinions and tips. Thank you.
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Bender B Rodriquez
post 23.Jul.2012, 10:55 AM
Post #2
Joined: 25.Mar.2006

Haven't you asked this question 10 times already? Nobody knows...
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Silberfüchschen
post 23.Jul.2012, 11:19 AM
Post #3
Location: Europe
Joined: 24.May.2012

QUOTE (Gchinese @ 23.Jul.2012, 10:50 AM) *
But in the meantime, as I can see the housing only goes up in the past 5 to 10 years, or even back to 30 years.

The last time the bubble bursted was about 20 years ago. From Swedish Wikipedia:

QUOTE
Den allmänna meningen strax före kraschen var att fastigheter av "god kvalitet" (det vill säga i bra lägen i storstäder) skulle klara prisfallet bäst medan landsortsfastigheter beräknades få mest stryk. Detta antagande visade sig dock felaktigt då prisfallet på kommersiella fastigheter i Stockholm blev runt 70–80 % medan landsortsfastigheterna föll mindre än hälften. Villor och bostadsrätter påverkades av prisfallet, i vissa fall tappade de nästan lika mycket som kommersiella fastigheter men ibland bara så lite som 15–20 %.

It can certainly happen again, but not necessarily in the same way. Perhaps the prices will instead stabilize and slowly decrease with inflation.
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Archer1
post 23.Jul.2012, 07:44 PM
Post #4
Joined: 10.Aug.2010

QUOTE (Silberfüchschen @ 23.Jul.2012, 11:19 AM) *
The last time the bubble bursted was about 20 years ago. From Swedish Wikipedia:It can certainly happen again, but not necessarily in the same way. Perhaps the prices will ins ... (show full quote)

Well its a big question and no one can predict this. But my feeling and few others who I talk to is that it is unlikely to happen for next couple of years. EU will try to save the good economies like UK,Sweden,etc as if these also fall then it will create panic in EU and the world will suffer.
That is the reason Riksbanken has decided to decrease the interest rates. Anyway I could be wrong but I dont see any fall in coming years and you will not suffer if you buy house for your living and not for investment.
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Engelsmannen
post 24.Jul.2012, 01:53 AM
Post #5
Joined: 7.May.2008

Is your friend earning 50% more than 5 years ago? Are you? Will you be earning 50% more in 3-5 years time?

It's recommended that you don't borrow more than 2-2.5 times your income for property, unless prices are cheap.

Lots of signals should be warning you - rent now, save, and buy later.
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Archer1
post 24.Jul.2012, 10:55 AM
Post #6
Joined: 10.Aug.2010

Go and buy, if you want one...you will never know when its a bubble and even if it is you will never know where is the bottom and that no one can tell so either you decide a limit and wait for that or go and buy and forget abt bubble.
City is a safe choice as it will always be a dream for many to live in there and there will be demand.
5-10 years perspective in RE never gives you loss...check USA for example.
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Yorkshireman
post 24.Jul.2012, 12:48 PM
Post #7
Joined: 22.Nov.2011

Housing is over priced, Well, one can argue that something is worth only what someone can, and is prepared, to pay. The people around you may not be prepared, or able, to pay the current prices, but as the Stockholm market shows, there are still very many that can and do.

Interest rates will go up, In general, interest rates go up with positive economic growth, the current macro economic models used in many countries, use interest rates as a tool to try and control inflation. When there is growth, rates are increased to keep inflation down, when there is economic decline, interest rates are lowered to prevent deflation and encourage spending. Doesn't work as expected anymore since the original models were based upon the majority of production and consumption being within the same country ...where-as now many products are sourced from asia, so local interest rate changes do not have the desired effect ...but that's another story!

Prices dropping 30-50%, it will take something like what has happened in Spain and Greece for that to happen. It requires a combination of over-borrowing, mass unemployment and no government support via welfare system. This is exactly what happened in the UK at the end of the 80s ... high property prices, over borrowing, unemployment rose quickly ... people couldnt pay their mortgages, banks took the homes and dumped them on the market ... remember, the bank only has to sell the property to recover what is owed and not the full value! The banks caused a collapse in the UK property market. Now the UK has a small but workable benefit and agreement with banks for those with mortgages that lose their jobs.

10+ years ago, in Sweden, this was more likely than now. There didnt used to be any real support for home owners whether bostadsrätt or a owner (house), they expected you to sell the property and rent if you got into payment difficulties. Now however, there is a slightly better system, whilst they still consider a house or bostadsrätt as an asset You should sell, they understand that it is not always possile, so there are benefits available to help pay the interest (no capital) and running costs of a owner home rather than forcing one to sell. The general rule is, they will pay for a minimum of 4 months the running costs, longer if it is shown to be difficult to sell and a few other things they take into consideration. So the initial impact of credit defaults will be absorbed smile.gif

Any investment has an element of risk attached. Your current questioning and trying to understand is a good sign that you are approching with caution a large investment, however at the same time you seem very uncertain and insecure about the property market, and general economy. That should be enough to tell You that You are not ready for the leap into property ownership, since You will continually live with the stress of thinking/uncertainty about potential collapse! Personally, I would be more worried about employment, it will take large scale unemployment to collapse the property market, so losing your job will come 1st!.

Not too cynical for a Tuesday I hope! biggrin.gif
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Archer1
post 24.Jul.2012, 10:02 PM
Post #8
Joined: 10.Aug.2010

http://www.theglobeandmail.com/report-on-b...article4178647/
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Taxalien
post 24.Jul.2012, 11:01 PM
Post #9
Joined: 24.Dec.2009

Any emphasis on interest rates is misguided in my opinion.

Since the introduction of Basel, Basel II and now Basel III, it is becoming more and more difficult for any bank to issue mortgages. They are failing to do so, because they do not have free capital in the bank that they can use to issue house buyers who are looking to buy a house. Also, the overall average indebtedness of the Swedish people is, overall, making it difficult to sustain the housing market in Sweden.

Interest rates are therefore not the primary reason why house prices are slowly dropping in price in Sweden. It is rather how the banks are forced to calculate the capital reserve requirements for any given house mortgage.

And this is still very generous, especially if you have an alternative view point such that perhaps loans should be drawn from deposits or if you are not in favour of fractional reserve banking systems.

So, if you buy, buy because you want to own a house, rather than live in a rented or semi-rented apartment such as a bostadsförening.

Don't buy to speculate or because you expect a higher asking price for it later.

Expect to make a loss on your house, nominally or in real terms and expect that it will cost you money to maintain.

Anything else a bonus.
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Puffin
post 25.Jul.2012, 11:28 AM
Post #10
Location: Dalarna
Joined: 5.Apr.2006

QUOTE (Gchinese @ 23.Jul.2012, 11:50 AM) *
. But most people around me seem like think the same thing - the housing is over priced, soon there will be crisis, interests will go up, people will loss their jobs, property ... (show full quote)

That is what happened in the mid 1990s - but then as you can see prices recover
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astrocase
post 25.Jul.2012, 11:33 AM
Post #11
Joined: 26.May.2012

Is there a bubble? Absolutely. Will prices drop? Absolutely. How much? That's what nobody knows. The number generally floated is 20%. Considering they've risen over 150% in a short period of time that's not even that bad.

Housing prices are related to rental prices, interest rates, unemployment, salaries, and a plethora of other factors.

Do a simple thought experiment. If you could rent a flat for 100 SEK a month or buy one for 1M SEK which one would you choose? Well unless housing prices are skyrocketing you'd clearly rent. It's more difficult though when you look at a 9000SEK rental price and a 10000SEK buying price due to the low interest rates. In that case buying will probably make more sense with a moderate rise in housing prices. However when interest rates rise even that buying price will suddenly not be as attractive. Do another thought experiment. If you buy a home for 1M SEK and suddenly unemployment in your community rises by 25% what would happen to housing prices? They would naturally drop as people default on their loans and move to more desirable areas where they can find work.

Sweden's economy is heavily dependent on trade with it's European partners. Several of those are at risk of default. If they default they will severely inpact other trading partners. Unemployment will rise.

To not believe in a housing bubble would be the same as saying that you believe interest rates will remain low, the government will not build rental properties, unemployment is not going to rise, the EU will sucessfully bail out all failing and struggling economies, and that Swedes are not running at some very high levels of personal debt.

Reality is that housing prices have fallen steadily and will continue to fall. If unemployment takes a spike they'll fall faster since people will be unable to pay their loans. It's going to be very interesting to see what happens to the eurozone and how it affects us up here.

Don't buy as an investment right now. You should buy because you need a home. You will lose money. The math that you need to do though is whether you will lose more from renting or more from buying.

Small Caveat. Keep the property for long enough and you should be fine (ie. buying a home and not an investment). I also wouldn't be surprised if the housing prices in the most exclusive areas of inner Stockholm are more or less stable. People who can afford those properties will generally not be affected by rising interest rates and unemployment. They will have enough disposable income to buy what they want and where they want it. For the rest of us though we are dependent on our local, EU, and global economies and clearly those aren't looking so good.
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Thebinary1
post 25.Jul.2012, 03:13 PM
Post #12
Joined: 4.Nov.2006

Quite a lot of misguided info here

Q: Is there a housing bubble in Stockholm?
A: Yes, housing in Stockholm is extremely (20% or so) overpriced. Do not buy in Stockholm unless you have the cash and are 'forced' to do so due to the dodgey rental market.

Q: Is there a housing bubble in Gothenberg?
A: Most likely.

Q: Is there a housing bubble in Malmö?
A: Not sure.

Q: Is there a housing bubble in Kiruna?
A: Definitely not. If you are retired and you just want a place to live in, Kiruna is the best place to buy. I do not know of many people who buy a place in Kiruna because they have a job there. I know of plenty of people who are software developer contractors and work for companies in the big cities, like Telia, Ericsson, etc... They earn Stockholm salaries, but they live in Kiruna and work remotely with the odd fly-in-fly-out to HQ once or twice a month. I am quite envious of people with such a deal.

Q: Is there a housing bubble in Sweden?
A: Yes, but only in the major cities. Otherwise, No is the answer to the question. The reason for this bubble in the major cities is two fold:
- Sweden's growth in manufacturing pales in comparison to its growth in services. Most corporations offering services, eg - accountants, software developers, etc... are headquartered in Stockholm, Gothenberg, Lund/Malmö. With ever increasing people joining the workforce, the big cities where service oriented corporations are based become a magnet and there is a large inflow of people. Construction companies in the major cities can't/won't keep up with the demand and so prices are elevated. With somewhat cheap money still being available, the prices are grossly elevated.

- Europe's a sh*t basket. Many folks within the EU/EEA find Scandinavia, and Germany their best chance to have a normal and productive life. This, coupled with Reinfeldt's generous foreign labour laws (which I think should be scrapped since there are a lot of people from the EU/EEA who need work) exacerbates the housing problem even further. Thai and Bulgarian berry pickers need not be stranded in the forests and their services can easily be performed by people living closer to the forests, who should work instead of getting the free-lunch welfare payments that turned Europe into a sh*t basket in the first place.

A housing bubble does not exist outside of the major cities. Infact, they are a bargain at the moment.
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Svensksmith
post 25.Jul.2012, 04:24 PM
Post #13
Joined: 28.Jul.2011

If you can afford the loan, and you stay there until you pay it off, then it doesn't matter. If you intend to sell 5-10 years down the road then you have to drive a hard bargain and hope and pray you do not end up owing more than you will get from the sale.

Believe me, there are lots of people all over the globe wondering the same thing. With the state of the economy worldwide, no one really knows for sure.

How much of a gambler are you?
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oddsock
post 28.Nov.2012, 11:50 AM
Post #14
Joined: 19.Dec.2008

QUOTE (Archer1 @ 24.Jul.2012, 10:55 AM) *
Go and buy, if you want one...you will never know when its a bubble and even if it is you will never know where is the bottom and that no one can tell so either you decide a l ... (show full quote)

Yeah, that's what they said about Dublin too, the city is a safe bet. Prices there are down over 50% from peak. And if you bought at the peak then it's going to take a lot longer than 5-10 years to recover. Try 20-30.

Interest rates are at an all time low yet house prices are only stable or falling slightly. Despite the market being pumped full of low interest loans, prices aren't rising. And interest rates can't stay low forever.

I am continuing to save. My savings are going up slowly and house prices are falling slowly. If this keeps up I can buy with cash some day.
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Yorkshireman
post 28.Nov.2012, 12:02 PM
Post #15
Joined: 22.Nov.2011

QUOTE (oddsock @ 28.Nov.2012, 11:50 AM) *
Interest rates are at an all time low yet house prices are only stable or falling slightly. Despite the market being pumped full of low interest loans, prices aren't risin ... (show full quote)

House prices remained unchanged over the last 3 months, but Bostadsrätt have risen in price by roughly 2%.
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