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House price bubble 'a myth'

TT/The Local · 18 Mar 2010, 12:39

Published: 18 Mar 2010 12:39 GMT+01:00

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Svensson rejected several recent reports that the Swedish housing market is showing signs of a bubble.

"There are currently almost no risks at all, this is a myth," he said.

The deputy-governor referred to a recent report by the Swedish Financial Supervisory Authority (Finansinspektionen - FI) on the situation for the housing market.

"Even if one makes extreme assumptions there will be very few households in financial dire straits, according to the report," Svensson said in a seminar organised by the Centre for Business and Policy Studies (SNS) on Friday.

Irma Rosenberg, a former member of the Riksbank board, is however of another opinion. Rosenberg sees the rising mortgage burden and climbing house prices as a warning signal.

"If you look at the whole picture then one should be a little concerned, even if monetary policy is not the correct weapon to use," she said at the SNS seminar.

Svensson has registered reservations at several meetings of the Riksbank board over decisions to leave base rates stationary, instead arguing that the repo rate should be slashed to zero (from a current 0.25 percent).

Had the rate been cut, 10,000 to 16,000 more jobs would have been created, Svensson argues.

"We would have had a smaller production gap in the economy," he explained.

But Rosenberg disputes Svensson's assertion.

"That a 0.25 percent lower rate would have created 16,000 more jobs does not add up to me. There must be something wrong with the model," she said.

The Riksbank board has been roundly criticised for its interest rate forecasts and for raising the repo rate to 4.75 percent just weeks before the Lehman Brothers collapse in September 2008.

Story continues below…

Svensson was one of those who voted for the rise.

"During the summer, inflationary pressure increased and the real economy weakened. I thought it reasonable that we continued along the interest rate path that we had projected," Svensson said on Thursday.

"But not all have understood that in fact we eased monetary policy at that meeting by adjusting the repo rate path downwards," he adds.

Svensson underlined that their decision would have been different had the board known that Lehman Brothers would collapse.

TT/The Local (news@thelocal.se)

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Your comments about this article

15:56 March 18, 2010 by Tiddler
This is a contrary indicator signalling the top of the market.

Just ask the Irish, Spanish, Portuguese, the Yanks and most of Eastern Europe, when the Central Bank starts issuing denials the game is over.
16:21 March 18, 2010 by the fonz
I hope it's a mtyh - I just bought a house
17:09 March 18, 2010 by stoffer
The government should intervene to keep prices reasonable, otherwise people will end up taking lifetime mortgages for 40 m2 "apartments". The ones, who will benefit most from that kind situations, are the banks, lending money for 30 years and more. If that will happen, I am moving to out of Sweden.
19:33 March 18, 2010 by Stockholmpatch
clearly stoffer is not well educated in finance and economics!
23:13 March 18, 2010 by kzjh72

I'm not sure what you mean when you say that "the government should intervene to keep prices reasonable". Do you mean that a government body should dictate the prices? I hope not.

Though you might mean that the government should intervene by making it easier to get approval for new housing developments to make the supply to better match the demand, then I'm with you.
00:22 March 19, 2010 by GLO
Why would Sweden be excused from the World Economy...

Economic problems always come home to roost...

Just when a govt official speaks up better look out!!!!for your own business...Better be safe than sorry.....
08:55 March 19, 2010 by Kronaboy
Actually the government indirectly intervenes by regulating the rental market, namely it keeps a check on rent rises so crooked landlords are prohibited from charging extortionate rates for substandard properties, thereby not forcing people to buy because it is cheaper; and the post 91 banking regulations prohibits two bit buy to let shysters from exacerbating the situation further. Don't forget Sweden is one of only 3 countries within the EU with sound national finances, its a pity rest of EU (i.e. UK) failed to pay attention in 91.
16:17 March 19, 2010 by justanotherexpat
We're selling a house at the moment and have been told to expect a bidding war, since supply is outstripped by demand.

Should be interesting, myth or no myth..........

(Commuter belt east of Uppsala if anyone's interested :D )
08:50 March 20, 2010 by Kronaboy
Now all you have to do is find a buyer to whom the banks are willing to lend.
12:51 March 20, 2010 by Syca
That is scary. Laws of gravity state that what goes up must come down. Nothing goes up indefinitely.

That is the mistake that the US made. Hopefully, the fact that Swedes are more fiscally responsible might put it off a bit.
07:27 March 24, 2010 by qed16
This sounds a lot like Alan Greenspan and the bank CEOs before the US market collapsed...

They don't have any incentive to say anything other than everything is fine, so what else should we expect? His statement of confidence is meaningless.
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