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When Sweden's Housing Bubble Pops

And Homes Are Lost, Where Will Swedes Live?

Gjeebes
post 17.Oct.2017, 06:25 AM
Post #1
Joined: 20.Feb.2012

If I understand it correctly, as it was explained to me by a Swede, in the 1990's economic collapse in Sweden, when homes lost (was it) 1/3 of their value, the banks moved in and demanded immediate payment of the lost value (since it would still stand in existing mortgages).

Is that correct? I don't really understand the how's and why's, but it is right that this actually happened, with the end result being that many people in Sweden, who simply could not make the payment demanded, lost their homes?

And then think of today, when there is a carefully crafted housing shortage at hand, where artificial price inflation, has been conveniently lining sellers' pockets for years and years, simply by playing with supply and demand.

Where will Swedish families move to, when they loose 1/3 of the value of their home, and the banks move in to collect the lost difference, which said families cannot pay? Even the smallest, most depraved corners of Sweden have cards in the housing shortage game.

Will homelessness skyrocket, in envy of the world Sweden? After-all, with the marvel of Sweden's brilliant and successful "ask-no-questions" social-prison model, it isn't as though these families will simply be able to vacate their homes and move in to a cheaper flats, before waiting years and years in the queue, right?

And then what effect on the magnificent Sweden economy will this have? How will people work, if they are living on the street?

And then what will be the mood regarding all those New Country people, who've had guv subsidised, arranged housing, who don't currently, nor ever plan to do, work?

Things could get really interesting!
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Kalyissa
post 17.Oct.2017, 08:48 AM
Post #2
Location: Malmö
Joined: 19.Jul.2007

There really isn't a housing shortage at least down here the problem is houses are often getting more expensive and many people have never paid anything off thier houses due to the old rules.

I have no pity for any of those who loose thier houses if they have not been paying anything off. Especially since you have older people who have never paid anything are living in large houses that could be used by families but refusing to move as they know they will then start having to pay for the house each month.

They should have made all the rules retrospective and forced everyone who owned a house to start doing the same.
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Mib
post 17.Oct.2017, 10:01 AM
Post #3
Joined: 7.Jul.2006

For years, people have been predicting a property crash in Sweden and for many years they have been proven wrong again and again. However, there comes to a point where a limit is hit and that time is probably now. The number of viewings have reduced while new lending rules have come into place. So inevitably, prices will go down. An estimate is around 10% correction. That isn't a problem for most as they have lived in their properties for several years. It's all an illusion if you do own 1 property. I saw a cheaper property that I thought would be nice, but after calculating the CGT and agent costs, I would need to borrow more!! They should have a stamp duty purchase tax, rather than CGT. One of the many reasons why old people don't sell. Also, (we will find out) when you're old, people are more resistant to change. Right or wrong, that's the reality. when they had the wealth tax, a lot of old people were forced to sell up. They were cash poor, but property rich. Remember, that they thought anything over 1.5m was wealthy!!!

Most sensible people do save to create a buffer and pay off some of the loan. But people have much larger mortgages than our parents and so, paying it off for many is not feasible. It will be interesting to see what happens when interest rates eventually go up. That's the elephant in the room.

The good thing about Sweden is the lack of buy to let, which is one of the biggest reasons for crazy prices in the UK. In Sweden, it's more to do with the artifical rent controls and the lack of building. They are the main drivers for price increases.

I can't talk about the 90's, but the lender only considers how much you want to borrow against the value of your property. As long as you can pay the mortage payments every month, then I don't see why the banks would be able to do anything else. I believe that would be illegal now, but when the sh*t hits the fan, anything can happen. Virgin Airlines almost went bust when their bank wouldn't let them get access to their £1 Billion cash in the bank.
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Gjeebes
post 17.Oct.2017, 02:04 PM
Post #4
Joined: 20.Feb.2012

Well, if I understand it correctly, Swedes, under the new rules, only pay down 15% of the value, at the beginning. Then I am sure they ride the 100 year, interest only idiot train, whereby you own nothing, leave nothing but debt for your children, while the banks continue to own everything and profit from the increase in value over time.

And I am fairly certain though, that if anyone ever bothered to read the fine print in their mortgage, it is stated in legal Meatballese, how it works when the value drops, against money owed.

But there is a rental housing shortage in Sweden, which is what has driven the artificially high house prices (people are essentially forced to buy). Where will all the evicted families live?

And yes, if the interest rate would be raised to even to 0%, people's interest payments will double. And then we will witness the "house of cards" disintegrate.

As I live well within my means, have zero debt, and substantial savings, I can hardly wait to watch it all unravel (and maybe pick up a cheap house to boot)!
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TLSucks
post 17.Oct.2017, 03:59 PM
Post #5
Joined: 12.Dec.2013

There is no such thing as interest free mortgages anymore unless you only borrow 50% of the property value. Only 85% of the property value can be borrowed and the amortization rate is at least 2% yearly until 70% and 1% yearly until 50% (or flat amortization over 10 years down to 50%).

By law, foreclosure is only allowed if the borrower has failed payments. If prices fall, the banks will likely the fall, and may end up under government ownership as in the 90s.

Housing prices can only be explained by fundamental factors until around 2012. Up to that point prices correlated almost perfectly with lowered interest rates and increased disposable income. Supply/demand is not really a major factor.
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rex
post 17.Oct.2017, 04:55 PM
Post #6
Joined: 3.Jul.2017

I am waiting for the house of cards to come crashing down. The prices in Stockholm and the surrounding peasant towns are insane and completely unjustified; an apartment in Uppsala does not cost $200k not matter how you try to frame the situation. The prices in Stockholm are just crazy ridiculous, for that amount of money I'd rather live in Paris and not in some shitty suburb in Stockholm.

But anyway, I don't care who loses and what happens to the poor sods who forgot to pay their loans. All I want is cheaper property. smile.gif
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wallace1837
post 17.Oct.2017, 07:11 PM
Post #7
Joined: 21.Oct.2012

QUOTE (TLSucks @ 17.Oct.2017, 02:59 PM) *
There is no such thing as interest free mortgages anymore unless you only borrow 50% of the property value. Only 85% of the property value can be borrowed and the amortization ... (show full quote)

Yes that regulation was implemented in 2016 and does not apply to mortgage taken before. Guess what is the fraction of mortgage still under the old law...
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plånbok
post 17.Oct.2017, 09:33 PM
Post #8
Joined: 17.Oct.2017

Hello guys,

I have been through the same question now that I am trying to find a place to buy. Being an active "searcher" for the last three months, my wife and I suspect that the "supply" is artificially controlled by the brokers. In other words, you find a place that is selling on hemnet or booli, but if you go to the real state broker webpage you see 2 or 3 apartments on the same address with the status "on the way". With that technique, they make sure that the price is always on a steady uprise. I understand this is part of the game.

Brokers and sellers: when I call a broker on the phone to discuss a particular apartment, I feel they get upset because I question the asking price. I argue based on the price history that hemnet/booli provides, or doing some finantial calculations bringing to "present value" the prices that are being asked on new constructions, comparing it to a compound grouth rate of the past years. It seems that they are thinking "shut up and go away because there is a lot more people willing to pay what I want without all this questioning".

When bidding, sometimes I get amazed how the price skyrockets in a matter of hours. I know everyone has the right to pay the price they want, but I always get puzzled how people value things here. It feels like the person who is bidding on the other side has a "bolånekalkyl" in front of him/her and is constantly checking if the monthly payments fits in his/her pocket, regardless of the final price. Talking to my swedish fellows in the office how I get discomforted about having such a big debt for 50+ years, that I would be putting myself in an enourmous risk for quite a long time, that a small change on the interest rate would hurt my finances me big time, the answer I get is "you should change your way of thinking / you will probably be dead before you finish paying it".

Renovations: when visiting apartments, one frequently advertised "advantage" is a renovated bathroom. But, when reading through the finantial report of the comunity, I find that the bathroom renovation is part of a series of planned changes within the comunity, which is added to your "avgift". So, you end up paying for the renovated bathroom twice: when you buy the apartment and when you pay the "avgift".

One thing that I haven´t figure out yet is who "owns" the apartment? Again, when reading the finantial reports of the comunity, you often find that a part of your monthly fee is directed to pay amortization/interest of the comunity´s debt. It feels like the so called "comunity" is nothing more than a REIT (Real Estate Investment Trust), who is granted a piece of land, gets a massive loan from a bank, pay a construction company to build the apartments, charges you for buying the "right to live" and, after that, you are "invited" to reduce the debt of this "entity" called "comunity". But where is the owner? Is it the government? the king?

The bottom line to me are:

- Sweden does not owe me anything: this is how the game is played here. So I either adapt or go away.
- Humans were not granted the gift of predicting the future: We don´t know if we are going to have a "burst" on the housing bubble or not. What we can do is to try to maximize our chances of winning by trying to place our bets were we have favorable conditions.

With that in mind I get less disappointed.
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Gjeebes
post 18.Oct.2017, 06:48 AM
Post #9
Joined: 20.Feb.2012

plånbok, WOW, thanks for that! Very, very interesting what you were able to scrape out of the "system" here after only 3 months. Any Swedes reading this will be trying to add up how many of Jante's Laws you broke in a single posting!

Yes, I have long suspected that it would be quite easy to dupe people here. Too many spoiled and entitled people that have zero comprehension of what is happening around them. And realtors are essentially like used car sellers, each property touted as a real treasure to behold regardless of anything!

Great that you stuck it to them by asking the right questions that show you are not the average dupe. I would guess by now your name is on some blacklist.

And what about bid bumping? How does one know when the price jumps, that it is NOT from an associate of said realtor, who is just playing a game for maximal price. Wouldn't surprise me since Swedes are too comfortable to bother even suspecting such behaviour could exist.

I would still hold off on buying for a while, numbers are indeed showing a slowdown, even if only a tiny increment, but it could signal the start of a serious cooling period. And then with the ole Swedish smoke-and-mirrors, there could be big trouble just around the corner that has been deeply repressed/hidden from view, but could show its ugly head from one day to the next.
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TLSucks
post 18.Oct.2017, 10:31 AM
Post #10
Joined: 12.Dec.2013

QUOTE (plånbok @ 17.Oct.2017, 09:33 PM) *
Hello guys,I have been through the same question now that I am trying to find a place to buy. Being an active "searcher" for the last three months, my wife and I sus ... (show full quote)


Yes, brokers and construction companies try keep the supply down since it is in their financial interest.

QUOTE (plånbok @ 17.Oct.2017, 09:33 PM) *
When bidding, sometimes I get amazed how the price skyrockets in a matter of hours. I know everyone has the right to pay the price they want, but I always get puzzled how peop ... (show full quote)


Yes, the cost is essentially measured through the interest rate. People have for too long assumed that the loan will eventually repay itself through inflation or price increases. This was the case in the 70s/80s.

QUOTE (plånbok @ 17.Oct.2017, 09:33 PM) *
Renovations: when visiting apartments, one frequently advertised "advantage" is a renovated bathroom. But, when reading through the finantial report of the comunity, ... (show full quote)

You are partially correct. One major planned renovation is to change water pipes every 40 years or so, and many apartment owners renovate the bathroom in connection with this overhaul. The pipes are paid through the association but renovating the bathroom is usually the responsibility of the owner.

QUOTE (plånbok @ 17.Oct.2017, 09:33 PM) *
One thing that I haven´t figure out yet is who "owns" the apartment? Again, when reading the finantial reports of the comunity, you often find that a part of your m ... (show full quote)


A housing cooperative is an independent legal entity (LLC), controlled/owned by the members (the apartment "owners"). https://en.wikipedia.org/wiki/Housing_cooperative
Typically, after a new appartment block is built, the construction company takes in cash from the buyers and changes ownership of the building by creating a housing cooperative where the buyers are now members. After that, the initial investor/constructor is out of the picture.
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IndianInStockholm
post 18.Oct.2017, 11:25 AM
Post #11
Joined: 12.Apr.2015

QUOTE (Gjeebes @ 17.Oct.2017, 01:04 PM) *
Well, if I understand it correctly, Swedes, under the new rules, only pay down 15% of the value, at the beginning. Then I am sure they ride the 100 year, interest only idiot ... (show full quote)

They can ride the interest only train (pay only interest and no amortisation) only after they have paid off 30% of the loan (old rules) or 50% (new rules after mid-2016) and not since the beginning.

Why do you say that you own nothing?
It's not as if you own nothing after that. You still hold rights to the house (even though it's mortgaged). If you were to sell after it went up in value you'd pay the bank the outstanding loan, pay the government and keep the rest. So I don't see how the banks profit from the increase in value.


QUOTE (Gjeebes @ 17.Oct.2017, 01:04 PM) *
And I am fairly certain though, that if anyone ever bothered to read the fine print in their mortgage, it is stated in legal Meatballese, how it works when the value drops, against money owed.

How does it work you think? I think you're just allowed to foreclose if you can prove that you can't pay instalments. It's then a bad debt in the books of the banks. That's what happened in the US.


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IndianInStockholm
post 18.Oct.2017, 11:29 AM
Post #12
Joined: 12.Apr.2015

QUOTE (TLSucks @ 17.Oct.2017, 02:59 PM) *
There is no such thing as interest free mortgages anymore unless you only borrow 50% of the property value. Only 85% of the property value can be borrowed and the amortization ... (show full quote)

I think you meant interest only mortgage. There has never and will never be interest free mortgages. That would just be free money.
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Gjeebes
post 18.Oct.2017, 12:39 PM
Post #13
Joined: 20.Feb.2012

It's actually hard to believe there ever was such a thing as "interest only" mortgages, spanning 100-140 years. It makes zero sense for the customer, to hand that kind of power to the banks without blinking. Pure stupidity.

Swedes truly are a special breed.
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Mib
post 18.Oct.2017, 03:18 PM
Post #14
Joined: 7.Jul.2006

Property is only worth what someone is prepared to pay for it. In my experience, the banks will lend to you, but will assume a much higher interest rate to ensure you can still afford the payments. There is also the 15% down payment and the capital repayments you have to pay depending on your loan to value. So, in my view the Government has made the right moves to slow down the housing market. Of course if it only applies to new mortgages, then it will be a disincentive to older mortgage owners in selling, unless of course the rules allow you to transfer the same mortgage to a new property without having to paying a % of the capital back.

As I said, property prices have risen due to an outdated rent control system and a serious lack of new affordable housing. In the short to medium term, that is not going to change, however much you wish prices to crash. The Uk is a prime example. London prices were still increasing in some parts during the darkest depths of the credit crunch. The Swedish economy is growing, unemployment is going down and even in the deepest depths of the credit crunch, the property market didn't crash. Why? Because the Government had learnt from their own credit crunch in 1990's and stimulated the domestic market. And also the buy to let market doesn't really exist over her due to the housing associations not allowing it. Ireland, some of UK and Spain crashed massively.

I came her in 2006 and EVERY year I've heard the same wish that the market crashes. It hasn't and it won't, unless you consider 10% decline to be a crash, which in my mind it's not. Of course, I can't predict the future, ie Trump starting a nuke war or trade war etc. The 10% decline is a reaction to the regulations the Government has brought in and record prices. There's also a plan to HIGHLIGHT the associations accounts to buyers to make it clear how much debt they have, which will have a positive/negative effect on the price. Again, a good idea.

For those of you wishing a crash, you do realise that the economy would suffer greatly as a result and some of you would lose your job as a result. So, be careful what you wish for.

London for me is totally crazy. It makes Stockholm look like a poor suburb. Where I used to live, house prices now are 6 times the price than in 1997. Wages have definitely not followed that. Prices have doubled since 2006. If any place is in trouble, it's the UK. 1.9 trillion national debt with a 30 billion deficit, Brexit on the way and people borrowing heavily on credit cards etc while having vast mortgages. Their rates are due to go up very soon as inflation grows.

Mortgages will now last a lifetime and more and will be passed onto their children. Nothing wrong in that as I suspect the capital in the property will be nice to have, especially if they sell. It's typical in Japan. The major constraint in my mind is that our parents/grandparents would have been able for one to go to work while the other stayed at home looking after the house and children. Now, you need both to work. Unless, they allow pologamy, then I can't imagine prices increasing in large steps unless people suddenly start earning a lot more than today.

Estate agents are like mechanics. I don't trust them. So being sceptical of them is a good thing. When I bought, they used to market the price much lower than the REAL price to create a bidding frenzy. Some stairwells had queues of people for viewings. Although, it's against the rules, they managed to avoid any penalties, but now it seems prices are set more realistically, but more like the UK market where they have a price they want, but will accept lower if they can't get their asking price.

The ONLY realistic answer is for the Government to invest in a mass building program. There are no shortcuts to reducing the property shortage issue.
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axiom
post 18.Oct.2017, 03:48 PM
Post #15
Location: Stockholm
Joined: 24.May.2011

House prices have been due for a crash since I came to Sweden almost a decade ago. My first hunch was to wait and see then soon realized this could be a long wait. We started with 1:a eventually bought a house and still the market keeps going lively. There will undoubtedly be a price correction but this is less likely while money is almost free to borrow.
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