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OECD warns of bubble in the Swedish housing market

Monday, 21 November 2011
One more scoop on the Swedish housing market. According to the organization, the OECD, the Swedish house prices are overvalued by about 30 percent in relation to income.
According to the business The Economist Swedish house prices should go down by about 40 percent.

“We have said that house prices should be down by about 20 percent in real terms. The adjustment may take place at different speeds,” says Bengt Hansson, an analyst at the National Housing Loan Board.

Last spring, the OECD said that house prices in Sweden will reach its peak this year or next year and then fall. The effects can be large. According to the organization, the prices are more than 30 percent higher than they should be in relation to income. If the bubble bursts, it can get very large negative effects on the financial sector, according to the OECD.


The Economist warns of Swedish house prices that their values indicate an overvaluation of about 40 percent. The magazine calculates, however, that among other things, by comparing the cost of rental units can be problematic because the rental market in Sweden is regulated.
But even the National Housing Credit mention and points to a real estate bubble.

“Prices are so high relative to what they should be. So, based on a reasonable valuation, we have today an unreasonable bubble looks eminent,” says Bengt Hansson.

Also, the credit rating institution, Fitch raises a warning flag for

Sweden in early November, in which it called for the lowering of mortgage rates in Sweden. The effect is that the lowering of interest rate could lead to further rise in house prices and it may in the long run be negative for the economy Fitch has posited then.
A sign of the bubble is that housing prices, especially in big cities, have risen several times faster than consumer prices. Other signs, for example, the rapid development of prices relative to wages and GDP.

In Sweden, however, both the Riksbank (central banks) and Finansinspektionen (FSA) have spoken out several times last year against the possibility that there would be a housing bubble. According to the Riksbank, the effects of the mortgage ceiling which the FSA introduced last year, was a tool that was determined to be used in calming any bubble tendencies.

But according to Statistics Sweden and real estate business sector, the mortgage ceiling had a marginal or no effect on prices.

Meanwhile, the Riksbank is a very important player in the mortgage market, and one of the players who contributed most to the house price rally by setting interest rates to their lowest level in Europe.

Even that FSA has a responsibility for development through regulatory responsibility over the banks and the responsibility for financial stability.
By Team

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