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Swedish Households at Risk of Increase in Rates:

350$/month payment increase will sink many

Gjeebes
post 15.Nov.2017, 09:55 AM
Post #1
Joined: 20.Feb.2012

http://nordic.businessinsider.com/swedish-...conomy-2017-11/

1.) "Almost half of Swedish homeowners would have to sell their home if their debt costs rose by $350 per month (SEK 3000)."

2.) "“Prices have dropped 10 to 15 percent since this summer,” said Carina Husgård, a Stockholm real estate broker at Bosthlm to Dagens Industri. She was one of several real estate brokers confirming a — what one described as "permanent" — dip in house prices to the Swedish business daily."

Ah Sweden, where being considered rich isn't about how much money you have, but about how much money you have borrowed.

I think if the buffer zone has really been eroded down to a measly 350$/month, everyone should buy stocks in leading anti-anxiety drug manufacturers/companies! : )

But its not so bad, is it? Stop living the life of luxury on borrowed money, and start becoming acquainted with that little thing called "reality"?

PS: and what effect will this have on the mighty SEK: "The Shock of Sweden's Housing Market is Hitting the Country's Currency"; https://www.bloomberg.com/news/articles/201...ank-few-choices

Ooooh, what an election year it will be, in the "goodest" country!
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john.boy
post 15.Nov.2017, 07:02 PM
Post #2
Location: Stockholm county
Joined: 27.Sep.2017

Yet they fail to mention that if the rent controls implemented in 1940's are removed then a minimum of 30% of people would lose their rented apartments.

Ask yourself this, why is the focus on home owners and their costs? Possible answer, the socialists want to make a grab at the rest of their disposable income. Stop people being able to purchase homes and then they have enough disposable income to grab wink.gif
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Gjeebes
post 15.Nov.2017, 07:16 PM
Post #3
Joined: 20.Feb.2012

Mmmmm, cashless society starts to sound even better!
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Gjeebes
post 16.Nov.2017, 06:04 AM
Post #4
Joined: 20.Feb.2012

And this is interesting, seems consumer spending is coupled to housing value via the "wealth effect". (http://nordic.businessinsider.com/one-scary-graph-shows-how-swedens-housing-drop-could-cripple-the-economy-2017-11/)

1). "A top banker at Nordea posted a graph on Twitter that highlights the seriousness of the situation. Looking back at the past 15 years, there is an almost absolute correlation between Stockholm apartment prices and personal consumption."

2). "Economists use the term wealth effect. It means that you tend to spend less when your assets are valued lower and vice versa. And less spending will ultimately drag down other sectors, such as retail and consumer products, and more or less the whole economy."

I wonder if Nordea moved also because of something it knew that it isn't telling us, beyond the "retardedness" of Sweden's overzealous "protection fund" plans.

(from: http://nordic.businessinsider.com/one-scar...onomy-2017-11/)

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oddsock
post 20.Nov.2017, 10:17 PM
Post #5
Joined: 19.Dec.2008

Yes, the household debt driven wealth effect is typical in western societies and leads to boom bust cycles.

The Swedish economy has been "booming" in comparison to other countries in Europe. But this is mainly due to Sweden's boom-bust cycle being out of synch with the rest of Europe.
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Gjeebes
post 21.Nov.2017, 07:39 AM
Post #6
Joined: 20.Feb.2012

And most of the focus has been on the banks, which will likely weather a storm well, presuming lessons have been learnt, but what about exposure to the secondary effects of a flagging economy, which is certain to arrive on the heels of a housing correction?

http://www.afr.com/real-estate/banks-might...20171120-gzph0q
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john.boy
post 22.Nov.2017, 07:58 PM
Post #7
Location: Stockholm county
Joined: 27.Sep.2017

QUOTE (oddsock @ 20.Nov.2017, 11:17 PM) *
Yes, the household debt driven wealth effect is typical in western societies and leads to boom bust cycles.

No it does not, there are other underlying economic factors that are often unique to each boom & bust cycle.

The main reason why there is a correlation (found in almost all countries) between house prices and consumer spending is not the house prices themselves, but rather the underlying economic reason that house prices tend to rise when borrowing is cheap, which means it is also cheaper to get credit to purchase, plus those with room between mortgage and new property value can borrow more, cheaper, to purchase more consumer products.

Money is the same as almost everything else, supply and demand determines it's price. like now in Sweden, it is cheap(ish) to borrow because Swedes are saving more than ever (not just because of the central bank rate!) and banks fund the lending mainly from those deposits, they have to sell their money somehow.
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oddsock
post 23.Nov.2017, 05:00 PM
Post #8
Joined: 19.Dec.2008

No, that's not how money works. Debt is not a bank loaning out people's savings. The average Swedish mortgage is what? One million, two million SEK? Is the average Swedish savings account 1 to 2 million SEK? I don't think so.

Mortgage debt is a bank's claim on the future income of the borrower. Whenever a loan is made, new money is created. That's how our monetary system works. If banks didn't have the ability to create new money in the form of debt, then the world economy would grind to a halt because there would be no investment. The problem is that banks have become lazy: they plough money into mortgage debt instead of investing in business. The latter requires much more work: the evaluation of business plans, etc. But investing in a business plan is economically productive: it can create jobs and GDP and the borrower pays off the debt from business profits. Investing in houses doesn't create GDP or jobs. It is what is called economically unproductive debt.

Supply and demand for mortgage debt is to a large degree governed by mood: in a rising market both the banks and the borrowers start to believe that prices will continue to go up indefinitely and engage in risky, economically unproductive, mortgage lending. Robert Schiller called this the euphoria phase. Hyman Minsky was also one of the few economists who recognised that banks are not just intermediators of the economy: their lending decisions about where to allocate debt creation can actually make or break an economy.
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Gjeebes
post 26.Nov.2017, 08:08 PM
Post #9
Joined: 20.Feb.2012

Love it! Look at what happens to house prices in Sweden in 1995, the same year Sweden began its "price stability" policy!

Courtesy of Andreas Wallstrom of Nordea: http://www.zerohedge.com/news/2017-10-05/b...ing-bubble-ever

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Hmmm, who was it that said if no one can afford homes, they save their cash, and rent, such that it becomes easier for socialist tyrants to grab their money?

And then when does Sweden go cashless exactly?

Seems a 10% price correction might only be the floor...loooong way down to come back to "normal", eh?
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Gjeebes
post 27.Nov.2017, 08:27 PM
Post #10
Joined: 20.Feb.2012

And more media attention:

http://nordic.businessinsider.com/experts-...crisis-2017-11/
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wondering_again
post 27.Nov.2017, 10:38 PM
Post #11
Joined: 12.Feb.2014

In 2012 the interest was 4.4% and no amortering or just minimal. Now people pay between 1.7 - 1.9 % and a amortering of 2-3% a year.

Wonder what happens when the rates start to rise back to 4% ?

People are already talking about cutting down on Christmas expenditures. https://www.nordea.com/sv/press-och-nyheter...-julbudget.html
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Mib
post 27.Nov.2017, 11:34 PM
Post #12
Joined: 7.Jul.2006

You make an interesting point wondering_again. I would like to think they thought about this, but maybe not. However, the regulations only apply to new mortgages, so a small number are affected, but of course, those selling will see less interest as less people can afford the current prices.

But it also could prepare the market in advance, so when rates do rise, the current lower prices will mean less impact on the risks some people have taken. Again, it's only a risk if the job market is declining and interest rates rise quickly. No sign of that at the moment and banks in my experience do take future rate rises of 2-3% in consideration when evaluating affordability.
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Gjeebes
post 28.Nov.2017, 06:46 AM
Post #13
Joined: 20.Feb.2012

And I wonder what this "increased assets" means for Swedes, when they don't actually own said "assets".

How about an assets bubble driven by a housing bubble? See graph 4 Housing wealth:

https://www.bloomberg.com/news/articles/201...-housing-market

"Household wealth has been rising in recent years, but big chunks of those gains could quickly evaporate in a housing downturn."

I think it is clear something is going on. The only question is how bad it will get.

"Danske Bank A/S assesses a 35-40 percent probability of a scenario that sees Swedish housing prices fall 15-20 percent. It estimates that such a decline would shave some 1.3 trillion kronor ($157 billion) to 1.75 trillion kronor off households’ housing wealth.

But over at the Riksbank, Ingves doesn’t expect such a dramatic drop in Swedish housing prices, in part because of the strength of the economy. He’d better be right, because after going all-out on stimulus over the past three years, he doesn’t have much ammunition left should things turn out for the worst."
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wondering_again
post 28.Nov.2017, 10:44 AM
Post #14
Joined: 12.Feb.2014

QUOTE (Gjeebes @ 28.Nov.2017, 06:46 AM) *
And I wonder what this "increased assets" means for Swedes, when they don't actually own said "assets".How about an assets bubble driven by a housing b ... (show full quote)



Most of the mortgages in Sweden are funded by international investors who have been sold these as AAA rated. So there is a lot riding on the bubble. Also these are probably denominated in dollars. So a lot of twitchy bankers out there.
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Gjeebes
post 28.Nov.2017, 03:44 PM
Post #15
Joined: 20.Feb.2012

"...who have been sold these as AAA rated..."

Nice! Now, I wonder, if like in the States circa 2008, these are actually complete junk mortgages, individually, but when packaged and sold in quota, are magically bestowed with a "AAA rating"; artificial, and non-binding!

If so...WOW! Start buying shorts in the Swedish mortgage sector!!!!
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