Sweden' household debt mountain is decreasing faster than expected but there is still demand for it to fall faster and quicker


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Saturday, 02 July 2011
The growing Swedish house hold debt is increasing at the lowest rate seen in 12 years, but it must slow down more. It should also be in line with rising interest rates that cool the housing market, says Swedbank's chief economist Cecilia Hermansson.

Loan fever has cooled down gradually in the past year and is now the lowest since December 1998.
The rate of growth of the household debt mountain alternated in April down to 7.2 percent in annualized terms, according to Statistics Sweden. This compares with 7.3 percent in March this year and by 9.2 percent in April 2010.

But after the past decade with high tempo debt growth there is the urgent need to slow down even faster, Swedbank’s chief economist Cecilia Hermansson, thinks.

"It would not be wrong with a more rapid deceleration. On the other hand, I think we will see it in pace with developments in the housing market dampened by the fact that interest rates rise further. "

A sustainable debt growth would be that household borrowing grew as revenue increases, though inflation worried also stand on the way.

"It would be reasonable to have around 5 percent debt rate increase over time. Otherwise, we would continue to build up the debt burden further. "

Reaching there will “depend on whether house prices begin to fall back or if it becomes more of a stabilizer. But I would think that it takes place during the next two years, when interest rates have risen gradually.
About how debt growth has exceeded income growth in over a decade, the Swedbank authority said that:
"The trend has been caused by low mortgage rates throughout this period and an increasing number of people have had the opportunity to take out loans. The fact is that house prices have been rising at the same time as the debt grew. The first years were reasonable that prices rose from a depressed state after the 1990s crisis. But in recent years the trend has become untenable. We have had extremely depressed interest rates, with even negative real interest rates. Then there emerge anomalies and imbalances. "
Sweden has seen its household debts ballooned in the past years caused by excessive desire by people to want to own home and the homes being over valued. Average homes in Sweden in normal areas cost more that expected incomes and various calculations have shown that it will take long for the Swedes to be able to pay back their house loans.

But the government’s macro economic policy of increasing interest rates and putting on  cap on how much banks can borrow out to home buyers from 10 to 20 percent has cooled the market and might see house prices start falling. 

Already there are signs that the house prices are beginning to fall. Should this continue, of coarse there would be gains and cried in the sector. Those who bought their homes at high price will see the value of their houses eroded and it will tend to look like throwing money in the pit. New entrants will come at a time when house prices heights have reach an approachable level.
By Team

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