• Sweden's news in English

State warns of housing boom and bust

Peter Vinthagen Simpson · 23 Feb 2010, 09:30

Published: 23 Feb 2010 09:30 GMT+01:00

Facebook Twitter Google+ reddit

The board warns in the report, published on Tuesday, that when the bubble bursts house prices in Sweden can be expected to fall by 20 percent.

In its thrice yearly housing market report, the board has warned that a "price will be paid for the bubble" and predicts that a correction can occur suddenly "or through a more gradual process of inflation eroding the value of stagnant prices."

The board points out that since 2000 Swedes have changed their credit habits with regard to their homes.

"Households are extracting ever more capital from their homes through mortgage loans which are used to an increasing extent for investments other than housing," the board wrote in a statement.

Since 2000, Swedish households have borrowed an average 130 billion kronor ($18 billion) against their homes per annum, with only 45 billion kronor being used for housing investments (including purchase and renovation).

Between 1975-1999 Swedish households were more inclined to not only use disposable incomes to renovate and maintain their homes, they also used income to amortize.

The board, which is a national government agency under the Ministry of Finance, warns that the change in habits combined with easy credit, which has been sustained during the credit crunch, has led to a spiralling circle of increasing debt and inflating house prices.

The report declined to forecast exactly when this bubble was due to burst but predicted that the risk it would occur in the coming years was "very high."

Factors affecting the timing of the purported crash include "climbing interest rates or declining exports," the board explained.

It is also observed that Sweden is not unique in recording high levels of house price inflation over the past decade, with the deregulation of credit markets in developed countries and global imbalances identified by the board as the underlying causes of asset-price rises.

The difference between Sweden and many other developed world economies is however that many other markets have experienced a correction in recent years, while Sweden has not.

"Despite a large fall in GDP in 2009, Swedish house prices climbed over the year. With the backdrop of the macroeconomic situation this development can be considered surprising," the board observed.

The report warns that heavily indebted Swedish households are vulnerable to interest rates rises as well as asset price deflation.

Mortgage costs as a percentage of disposable income are currently at a record low 2.7 percent when comparing statistics from 1980, but leverage has increased from around 15 percent to close to 50 percent over the same period.

Story continues below…

The National Housing Credit Board concludes that Swedish households could suffer a shock when interest rates rise only modestly.

"A normal mortgage interest rate of around 5.5 percent would make it significantly more expensive to live and motivates, according to our calculations, 20 percent lower house prices than today," Bengt Hansson at the board told news agency TT.

The parlous state of government finances in many the EU countries is a further factor that the board warns could shift a booming market into a bust.

"Aside from a new recession interest rates could be forced up strongly in the wake of the state financial crisis which has hit many EU countries very hard," Hansson warned.

Peter Vinthagen Simpson (news@thelocal.se)

Facebook Twitter Google+ reddit

Your comments about this article

11:05 February 23, 2010 by Eric Cantona
What they seem to overlook in Sweden having avoided the correction of other countries is the scarcity of properties. Just last week a report announced a waiting list of city rentals of 10 years. Meantime, where shall everyone live? They have to buy something...
11:23 February 23, 2010 by Blackman_for_Blondes
Property is still very cheap in Sweden compared to other EU countries and any fall will make it very very cheap..another reason to live in the land of the blondes..lol
11:27 February 23, 2010 by Twiceshy
I don't see why I should worry about a housing bust, even though I own a house. If my house's price falls 20% and every other house falls 20% as well, this decreases the price difference between my house and bigger, better houses. So it will be cheaper to move to a better house than I own today.
12:14 February 23, 2010 by wifey
@Eric Cantona

You can rent 'privately'. We've been doing so for years and the house we are renting is great! Price wise- a lot of 'privately rented' property is more expensive, you have to look around. Also, I am actually grateful that Sweden isn't as underdeveloped as some EU countries. In some, all you see is cranes, heavy machinery and an uprising of ghetto like blocks that are actually fenced or have brick walls around them....They are just catching up.

For me, a 20% drop will be great!!


True! Even if you go to a 'shitty' EU country, housing prices are ridiculous! Crap housing, crappier salaries and Swedish prices!
13:49 February 23, 2010 by EtoileBrilliant
If you think that the bubble will be caused by the non-housing related use of finance, you ain't seen nothing yet!

When we bought our apartment and signed the papers, I wanted to make the contract "subject to finance" just in case our mortgage provider had other ideas on the value of the property. The broker looked at me as if I were ill. To the bank the property is worth what you paid for it! In 25 years of being a mortgage banker, I had never heard anything that shouted "bubble" more than that.

The other matter to think about in Sweden is the wide disparity between capital gains (30%) and income tax (nearer 48%) coupled with the tax deductions for loan interest (irrespective of its its use). Never have I seen a tax system that encourages more asset speculation and deters income derived from hard work.

As critics of any system where "Warren Buffet pays less tax than his cleaning lady" have always pointed out - it matters a jot whether your Dollar is earned by capital gain or income, the tax rate should be the same!

The irony is that in Sweden, this asymmetry benefits the rich (whose income is primarily derived from from assets) and penalizes the poor (who have no assets and have to work)
14:09 February 23, 2010 by Twiceshy
EtoileBrilliant poor people don't 48% income tax. There is the basic allowance, and the lower tax brackets which aren't anywhere near 48%.

Heck I'm not anywhere near poor and my income tax is just a little above 30%.
14:11 February 23, 2010 by canam
Twiceshy - that is some dandy logic. You must think that all houses in varying areas drop an equal level (maybe it's your socialist roots). Very few benefit from a housing crash, and those benefits for them are usually not seen until the cycle comes back around years later.
14:23 February 23, 2010 by Twiceshy
canam you seem to have some trouble with the concept of "average 20% drop". On average I can expect the price drop between my house and other ones to be around 20%.

PS: Oh, and w t f do you know about my roots to make that comment?
15:06 February 23, 2010 by 2394040
Just in case you haven't figured it out, what was true at the beginning of history is still true. The goal of the rich, powerful, powers-that-be, aristocracy, or whatever you want to call them is unchanged. In order for them to maintain their power and money (both of which are synonymous; you can't have one and not have the other) they most keep the majority in a state of perpetual need and subservience. As they control the wealth, they also control the politicians who have no choice but to rubber-stamp whatever laws the rich want that will secure their power. Things might change as time passes, but this one fact has never changed. As I once heard a college professor say "the lust for power is the only universal value."
15:09 February 23, 2010 by Uncle
Twiceshy let me illustrate the problem. Let's say that theoretically all the houses drop 20%. You bought a house for 1,5 mil. Now it is worth 2 mil. You want to buy a house that is worth 3 mil. You make 0,5 mil on the sale - cover the top loan on the new house, plus pay for renovations and pay only interest.

If the prices drop 20% you old house is worth 1,6 mil and the new house is worth 2,4 mil. You make 0,1 mil on the sale, cannot cover for the top loan for the new house, pay for it's amortization plus the interest and still have the old ugly brown-purple wallpaper from the previous owners.

See? It is always better with price increase.
15:21 February 23, 2010 by Twiceshy
Uncle I think your argument is unnecessarily confusing. The price I paid for the house to begin with is old news, the money's gone and nothing's going to change that. So it's really just a question of whether I prefer to sell for 2 and buy for 3, or sell for 1.6 and buy for 2.4.

The answer is that I prefer the latter since it's cheaper.
16:16 February 23, 2010 by EtoileBrilliant
@Twiceshy - you do pay 48% income tax, you just don't don't realize it.

EtoileBrilliant poor people don't 48% income tax. There is the basic allowance, and the lower tax brackets which aren't anywhere near 48%.

Example - Assumptions: Income tax (Direct - 32%), Employer social fee (indirect - 31.42%)

From a pay of "100", the Employer first pays "32" in Income tax (direct - 32%), on top of that the Employer also pays an additional "31.42" in Employers social fees (indirect - 31.42%).

Thus, from a pay check of "100", 63.42/131.42 (i.e. 48.3%) is paid as income taxes.

If you ignore your Employer's tax contribution, you're half blind. That's money that would have gone to you!
16:47 February 23, 2010 by Uncle
Twiceshy - I adore you if your 1,5 mil for the house are gone and forgotten. Because whether you bought the house 25 years ago and correctly amortized the loan to 0, or you bought it cash and forgot about it.

As for me and most of mortal beings this money is not forgotten, but is a liability to the bank, which we need to return.

Therefore it is not get 2 mil or 1,6 mil into your hands, but get 500,000 or 100,000. The first one covers for the things that I described, while the second one does not.

Simple as bread.
17:09 February 23, 2010 by Twiceshy
Uncle if we want to get debt into the picture you are of course forgetting the fact that you will also have to contract more debt to pay for the new house if prices don't go down.

So let's look at the two examples again, assuming you didn't amortize any of the debt when you sell:

Prices don't go down: - 1.5m + 2m - 3m = -2.5m

Prices go down: - 1.5m + 1.6m - 2.4m = -2.3m

So again the latter situation gives you a 200,000 kr advantage.
20:54 February 23, 2010 by Uncle
Twiceshy - you cannot treat the entire loan equally. Top loan has double the interest plus you must amortize the top loan, but you do not have to amortize the regular mortgage.

Out of your 2,4 loan you have about 140K top loan on which you pay relatively huge interest rate. So after 15 years you paid off this loan, plus the interest on this loan, plus the interest on the main mortgage, while on 2,5 mil you pay only main low interest. (2,5% main interest and 5% top loan assumed).

Effectively, you are offloading hundreds of SEK for the first 15 or so years MORE than with more expensive house. Actually - about 100K more. At the end of 25 years, the more expensive house offsets the difference to "only" 40K paid more for the cheaper house.

However, with higher interest rates, this difference is even smaller and you can pay less on the cheaper house only if the average interest goes above 4,2%, given the top loan is still double that.

Everything because of the top loan! Your example works if you avoid that bastard loan even with the cheaper house.
01:32 February 24, 2010 by Blackman_for_Blondes
Many of you people argue here over things we have no control over best take a red stripe beer and relax and make the best of life..we are all working class in here..the rich will always get richer :)
11:22 February 24, 2010 by CarlBlack
@Uncle: Thank you for a perfect example of twisted logic of Swedes who don't amortize their debts.

I would conclude that both sides are right - if you amortize largely your previous debt and want to buy a new house, than the price decrease can be advantageous. If you don't amortize and neither save money for upgrading to a bigger house, then your only hope is that prices increase so part of the money for new mortgage are generated by themselves...
14:13 February 24, 2010 by Uncle
Spot on CarlBlack! Could not define it better.
Today's headlines
Sweden wants emission-free cars in EU by 2030
Photo: Jessica Gow/ TT

Sweden's environment minister on Saturday urged the European Union to ban petrol and diesel-powered vehicles from 2030.

Hundreds protest Swedish asylum laws
Around 1,000 people protested in Stockholm. Photo: Fredrik Persson/ TT

Hundreds of people on Saturday demonstrated in Stockholm and in many other parts of the country to protest Sweden’s tough new laws on asylum-seekers.

Dylan removes Nobel-mention from website
The American musician has more or less responded to the news with silence. Photo: Per Wahlberg

American singer-song writer Bob Dylan has removed any mention of him being named one of this year’s Nobel Prize laureates on his official website.

Refugee crisis
Asylum requests in Sweden down by 70 percent
Sweden's migration minister Morgan Johansson. Photo: Christine Olsson/TT

Sweden received 70 percent fewer requests for asylum in the period between January and September 2016 than it did during the same time last year, the country’s justice and migration minister Morgan Johansson has revealed.

The unique story of Stockholm's floating libraries
The Stockholm archipelago book boat. Photo: Roger Hill.

Writer Roger Hill details his journeys on the boats that carry books over Stockholm's waterways and to its most remote places.

Refugee crisis
Second Stockholm asylum centre fire in a week
The new incident follows a similar fire in Fagersjö last week (pictured). Photo: Johan Nilsson/TT

Police suspect arson in the blaze, as well as a similar incident which occurred last Sunday.

More misery for Ericsson as losses pile up
Ericsson interim CEO Jan Frykhammar presenting its third quarter results. Photo: Claudio Bresciani/TT

The bad news just keeps coming from the Swedish telecoms giant.

Facebook 'sorry' for removing Swedish cancer video
A computer displaying Facebook's landing page. Photo: Christine Olsson/TT

The social media giant had censored a video explaining how women should check for suspicious lumps in their breasts.

Watch this amazing footage of Sweden’s landscapes
A still from the aerial footage of Sweden. Photo: Nate Summer-Cook

The spectacular drone footage captures both Sweden's south and the opposite extreme, thousands of kilometres north.

Sweden could be allowed to keep border controls: EU
Police ID checks at Hyllie station in southern Sweden. Photo: Stig-Åke Jönsson/TT

Sweden could be allowed to keep ID controls on its border with Denmark beyond the current end date of November, following discussions among EU leaders in Brussels last night.

Sponsored Article
This is Malmö: Football capital of Sweden
Fury at plans that 'threaten the IB's survival' in Sweden
Sponsored Article
Where is the Swedish music industry heading?
Here's where it could snow in central Sweden this weekend
Analysis & Opinion
Are we just going to let half the country die?
Blog updates

6 October

10 useful hjälpverb (The Swedish Teacher) »

"Hej! I think the so-called “hjalpverb” (auxiliary verbs in English) are a good way to get…" READ »


8 July

Editor’s blog, July 8th (The Local Sweden) »

"Hej readers, It has, as always, been a bizarre, serious and hilarious week in Sweden. You…" READ »

Sponsored Article
7 reasons you should join Sweden's 'a-kassa'
Angry elk chases Swede up a lamp post
Sponsored Article
Why you should 'grab a chair' on Stockholm's tech scene
The Local Voices
'Alienation in Sweden feels better: I find myself a stranger among scores of aliens'
People-watching: October 20th
The Local Voices
A layover at Qatar airport brought this Swedish-Kenyan couple together - now they're heading for marriage
Sponsored Article
Stockholm: creating solutions to global challenges
Swede punches clown that scared his grandmother
Sponsored Article
Swedish for programmers: 'It changed my life'
Fans throw flares and enter pitch in Swedish football riot
Could Swedish blood test solve 'Making a Murderer'?
Sponsored Article
Top 7 tips to help you learn Swedish
Property of the week: Linnéstaden, Gothenburg
Sponsored Article
How to vote absentee from abroad in the US elections
Swedish school to build gender neutral changing room
People-watching: October 14th-16th
Sponsored Article
'There was no future for me in Turkey'
Man in Sweden assaulted by clowns with broken bottle
Sponsored Article
‘Extremism can't be defeated on the battlefield alone’
Nobel Prize 2016: Literature
Sponsored Article
Stockholm: creating solutions to global challenges
Watch the man who discovered Bob Dylan react to his Nobel Prize win
Sponsored Article
Why you should 'grab a chair' on Stockholm's tech scene
Record numbers emigrating from Sweden
Sponsored Article
'There was no future for me in Turkey'
People-watching: October 12th
Sponsored Article
Where is the Swedish music industry heading?
The Local Voices
'Swedish startups should embrace newcomers' talents - there's nothing to fear'
Sponsored Article
Last chance to vote absentee in the US elections
How far right are the Sweden Democrats?
Property of the week: Triangeln, Malmö
Sweden unveils Europe's first elk hut
People-watching: October 7th-9th
The Local Voices
Syria's White Helmets: The Nobel Peace Prize would have meant a lot, but pulling a child from rubble is the greatest reward
Missing rune stone turns up in Sweden
Nobel Prize 2016: Chemistry
jobs available