Salient to Investors:

Bengt Hansson at the Swedish National Board of Housing, Building and Planning said:

  • The Swedish housing market is dangerously overvalued – house prices were 25 percent above fair market value in October, apartments even more overvalued.
  • Oceans of easy credit have eroded the Lutheran tradition of always paying your debts.
  • Only a fifth of house price increases can be explained by population growth outstripping housing supply. Income growth explains at most a further 50 percent. The real reason behind overvalued housing is cheap credit and interest-only mortgages as Swedes stopped amortizing and took equity out of their homes.
  • The Riksbank is reluctant to raise rates for fear of hurting economic growth, so amortization is the best way forward.
  • Sweden’s whole economy is living on borrowed time.

Filip Abrizeh at Swedbank Fastighetsbyraa said bidding wars are now the norm in Stockholm housing.

Svensk Maeklarstatistik said apartment prices in Sweden have more than tripled since 2000.

Household debt was 173 percent of disposable income at the end of 2012 versus 90 to 100 percent throughout the previous decade.

Par Magnusson at Royal Bank of Scotland said many Swedish households are very exposed to a fall in house prices.

Uldis Cerps at the Financial Supervisory Authority said the problem needs to addressed today as the popularity of interest-only loans means it takes 140 years on average for a Swedish household to pay off its mortgage. In essence, borrowers rent from the bank, while betting house prices will rise enough that when they sell, they can pay off the loan and still make a profit. Just 40 percent of households continue to make payments toward their mortgage principal after meeting the 25 percent threshold.

Robert Shiller said Sweden is experiencing a housing bubble and will face an inevitable crash.

Sweden’s response to a real estate–fueled meltdown in 1992 was lauded by economists as a model of how nations should respond to the 2008 financial crisis.

Paul Glasserman at ColumbiaBusinessSchool said Sweden’s residential mortgages risk weights are surprisingly low at 15 percent: versus the 35 percent recommended by BIS a decade ago, 50 percent or more in the US and 100 percent for less credit-worthy borrowers – one reason why US banks tend to securitize mortgages and sell them to investors.

Risk weights are lower in Europe, so banks can afford to keep mortgage loans on their own balance sheets.

Helge Berger at IMF said Sweden’s banks operate across the Nordic region, so a financial crisis there could immediately spread across its borders.

Boverket’s Hansson said the real value of owner-occupied houses in Sweden had been stagnant for almost 50 years, before jumping 80 percent since 2000, with apartments rising almost 150 percent.

Gregori Karamouzis at Swedbank, Sweden’s largest mortgage lender, sees no bubble because high prices are due to a lack of supply with no speculative construction in the past two decades – unlike recent housing bubbles in the US and Spain. Karamouzis says strict planning and environmental rules – it can take a decade to build new apartments in Stockholm – have scared off developers.

Statistics Sweden said Sweden’s population, at 9.5 million, expanded rapidly due to immigration and higher-than-expected birthrates and will increase by more than 80,000 a year during the next 5 years, a record rate.

Government rent control and a prevalence of co-op buildings reduces incentives for developers to build and constrains the supply of rental units, compelling more people to buy.

Jan Haggstrom at Handelsbanken says the concerns about the housing-price run-up are overblown and people should look at house affordability, not just prices.

Robert Bergqvist at SEB said real disposable incomes in Sweden grew 58 percent during the past decade, and though household debt is almost double disposable income, total household assets are more than three times as high.

Johan Andersson at SEB said Swedes almost never default due to the Lutheran tradition that you repay your debts.

Read the full article at

Click here to receive free and immediate email alerts of the latest forecasts.