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Swedish housing market the biggest money maker this year

Friday, 23 December 2011
The Swedish housing sector or the real estate sector has been the real cash cow for the Swedes this year ending shortly.

Traditionally, Swedes have been making lots of money on the stock exchange, as it is claimed but in 2011 the Swedish stock market collapsed and has been performing below average. The economy might have been reporting great results tat the macro level but at the micro level it has also been weaker.
Therefore, despite the sharp stock market declines and weaker economic activity, prices of homes have remained at historically high levels this year.

An average Swedish house is worth twice as much as ten years ago. In Stockholm, the price of houses has increased three or four times in twenty years, according to Statistic Sweden.
Since 1995, housing prices in the country have risen by an average of about 40 percent every five years.

In the cities and in the inner cities, prices rose, but also in the rest of the country has had a very strong increase in the value of homes.
Many people have been able to do a career in real estate development or just buy and sell and have earned millions from it in a few years. According to a new report from brokerage group Fastighetsbyrån, for example, a house dealer in Östermalm made a profit of Skr1.3 million averagely with in the last five years. That means a profit of over Skr22,000 per month when the cost of housing is omitted.

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“This development can be primarily explained by low mortgage rates and higher incomes. Households are looking at what they have to spend per month,” says Hans Lind, professor of real estate economics at the Royal Institute of Technology, KTH.

Reductions in taxes on both income and real estate have given the Swedes more money to spend. That interest rates remained at historically low levels throughout the 2000s has made it very cheap to borrow and banks have been generous with credit. It has driven up housing prices and household borrowing in an unprecedented way.

An overwhelming majority of those who own their home has floating interest rate on their debt, which is usually the lowest. Over 90 percent of the loans have variable interest rates, according to a report by the Swedish FSA.

“Variable rates nowadays tend to fall in times of crisis. This makes it easier to hibernate when the market stops. As long as unemployment is higher, households can expect to sell and there will be no significant price declines,” says Hans Lind.

The European Central Bank, ECB, and the Swedish Riksbank have already begun to lower their interest rates now.
In many other countries, house prices have plummeted in recent years and created financial crises. It may be partly explained by the fact that more houses were built and that developers found it hard to sell. Therefore the houses tend to remain empty after the financial crisis in 2008.
In Sweden though, house prices have started falling in recent months.

Next year, prices of flats will like remain same. However, it is more likely that prices of residential and holiday homes will falls, according to a new survey by the Fastighetsbyrån’s broker.

Erik Olsson, president of real estate broker see the sharp rise in prices in Sweden over the past fifteen years as a result of the nineties real estate bubble.

“We had an incredible crisis in the early 1990s, when housing prices in central Stockholm was halved. We are also 450,000 more people here in Stockholm than we were twenty years ago and construction has not kept up with,” he says.
By Scancomark.se Team



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