House prices set to cool off

House prices in Sweden will begin to cool off and household debt will increase more slowly over the next few years, according to a new report by Sweden’s Riksbank.

The report said household borrowing continued to increase in 2005, and in January the total household debt with financial institutions was 13 percent higher than in 2005, the strongest rate since the mid 1990s.

“Although households appear able to service their debts, a situation where annual increases in debt and house prices average 10 percent is not sustainable in the longer run,” Wednesday’s report said.

“The Riksbank’s calculations indicate that the house price increases and household indebtedness will slow down over the coming years, if interest rates develop in accordance with market expectations.”

The report said commercial property prices will also be affected in the future.

“…Prices in the commercial property market are currently based on expectations of rents showing stronger growth in future than they are now. If these expectations are not fulfilled, there could be price falls and problems for property management companies to service their debts, as well as the collateral for loans declining in value,” the report said.

Properties in Sweden