Riksbank warns of house price slump

The vice governor of Sweden's Riksbank, Lars Nyberg, has warned of the possibility of falling house prices in the country.

“My assessment is that house prices and household debt could very well have reached levels where there is a risk of a negative spiral with falling house prices and weak demand as part of a gradual economic downturn,” he said in a speech on Monday.

“Even if it would not, as I have said before, be due to a correction in an overvalued market, such an adjustment could, proportionately, be abrupt. Dealing with it early with a gradual increase in interest rates would in my view increase the possibility for a more gentle levelling off of prices, as has happened in the UK and Australia.”

Nyberg also stated in his speech that it is not just inflation which is guiding the Riksbank’s actions on interest rates. Changing prices of certain assets could make the central bank take into consideration events outside of the normal ‘forecast horizon’.

“In this situation, adjusting policies earlier would contribute to a minimised risk of a negative spiral in economic activity, which is coming sooner or later,” said Nyberg.