Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

Housing bubble in Sweden going pop?

by A swedish kind of death Sat Feb 12th, 2011 at 01:42:28 PM EST

Since the housing crash in the early 90ies, Sweden has had a long increase in housing prices, most markedly the last couple of years. Now it appears to finally burst.


A year ago Bostadskreditnämnden (Housing credit unit) warned that housing prices were to high and would need to decrease with about 20% (through inflation or price crash). They also warned about the cost of a bubble:

En bostadsbubbla kostar - BKN

BKN har i flera rapporter sedan hösten 2008 pekat på att bostadspriserna i Sverige är omotiverat höga. Den bedömningen står fast även i den senaste rapporten, En bostadsbubbla kostar. BKN bedömer att bostadspriserna behöver anpassas nedåt med i genomsnitt 20 %. Det kan ske snabbt, genom nominella prissänkningar, eller mera långsamt genom att inflationen urholkar nominellt oförändrade priser.

I think I quipped here at ET about the infinitesimal likelihood of any party suggesting to pop a bubble during an election. And it was not mentioned during the election, even though property taxes was a big topic and the tax base of such taxes might have been interesting.

After teh election, the warning was renewed and after some debate an interesting line-up formed. On one hand the central bank and the real estate salesmen denied that a bubble could be predicted at all. The central bank because bubbles can be known in their limited world and the salesmen because everybody knows that prices go up-up-up. On the other side was Bostadskreditnämnden, the treasury and the largest banks.

So the ceiling for large percentage of the houseprice you can borrow was lowered to the applause of the big banks. This was in October. Since then nothing much has happened, prices has continued up.

Today however, there was a news report that an unprecedented number of houses are on sale, not because more are put up, but because houses stay for sale longer (ie are not sold). (The article were I read this has apparently an unfortunatley gone offline, but I will try to find another source.)

Now the question is how insolvent our Swedish banks are. They were bailed out by the baltic taxpayers for their foreign adventures there, but I suspect that the structural insolvency of international banking means that any bank can crash.

Display:
No poll, but guesses as to how many banks will be taken into receivership and wheter any will be declared to big to fail, can be posted as comments.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Feb 12th, 2011 at 03:15:02 PM EST
The banks are pretty well capitalised now, and have refused calls for extra dividends. I think they can take quite a lot of punishment, especially Handelsbanken. Also do remember that you can't just leave the loan and turn the keys over to the bank. The debt will stay with you for at least ten years, during which the bank has a right to take all your income beyond the minimum wage.

What I worry about is all the subprime, stuff like no amortisation loans, or 100+ year amortisation. This is madwe even worse due to the insanity that 30 % of all interest payments (but not amortisations) are tax deductible.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Feb 13th, 2011 at 11:40:52 AM EST
[ Parent ]
Will the State not follow its own example from the early '90s and take equity in weak banks?

Also, how many smaller savings and loans or mortgage banks did that crisis leave in its wake?

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Feb 12th, 2011 at 03:42:14 PM EST
Hopefully, yes.

And also likely. The memory of the 90ies banking crisis is till here, those that handled that crisis are grand old men in their (again ruling) parties. Minister of finance Anders Borg also appears to be bright enough to realise what shock therapy now would do to the chances of getting a (post 30ies) record of three term rightwing government. As I understand it he is one of the main architects of the rightwing third way strategy they are running, and so far their gradual approach is victorious. I do not like his policies, but he is smart and will not be wandering around Rosenbad asking porters and cleaners for a plan.

Most small savings banks sparbanker was in the 90ies more or less merged into what is today Swedbank. Some new ones though, facilitated by the rise of the internet. Wikipedia gives 34 swedish business banks (incorporated in Sweden, not counting savings or investments banks) as of last december 2008. There are 4 big ones - SEB, Handelsbanken, Swedbank and Nordea.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Feb 12th, 2011 at 04:13:10 PM EST
[ Parent ]
The weakest is probably Swedbank, followed by SEB, Nordea and Handelsbanken.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Feb 13th, 2011 at 11:54:15 AM EST
[ Parent ]
Average time of sale is usually the first warning, sometimes a false warning, of an impending top. In 2005 in Los Angeles prices slowed their rate of increase in the early fall and average time of sale increased from the late fall into 2006. Prices peaked, IIRCC, in July of 2006 but it took until 2007 to confirm that prices had actually begun to decline.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 12th, 2011 at 05:35:27 PM EST
That slow? I thought it would go a bit faster.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun Feb 13th, 2011 at 05:02:28 AM EST
[ Parent ]
It can seem like eternity, especially when you are making life changing decisions. I sold in LA right at the beginning of the process. I advertised in September, accepted an offer after Thanksgiving, Nov. 30, IIRCC, we moved over the New Year and closed in mid January. All the while the market drifted higher on declining volume. The average price peaked and plateaued in July and had shown some decline by January, 2006, but most sellers and almost all the press were still in denial. The big declines did not come until 2008.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 13th, 2011 at 10:44:28 AM EST
[ Parent ]
As long as all margins are above 20 %, and the housing stock is "only" 20 % overvalued, it won't be the banks who get to eat the fallout, unless the correction is either larger than expected or the sovereign's macroeconomic stabilisation policies are sufficiently inadequate to push the country into a business recession.

Lotsa homeowners will see their equity go bye-bye. But that shouldn't be too much of a problem, as long as incomes remain sufficient to cover amortisations. Would suck to have been a first time buyer over the last couple of years, though.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 13th, 2011 at 12:42:35 AM EST
JakeS:
As long as all margins are above 20 %, and the housing stock is "only" 20 % overvalued

20% was a year ago, unfortunately I have no more recent numbers. There has been ads about getting your house value now etc (Increase mortgage, go on a trip!). How many households that are on the margin is hard to know, my suspicion is more then a downturn will cause problems with amortisations. And with the systematic insolvency in the banking sector a small slump might reveal more holes then there should be.

JakeS:

the sovereign's macroeconomic stabilisation policies are sufficiently inadequate to push the country into a business recession

Hm, we do have pro-cyclical pensions and a surplus goal in public finances, though the latter is (or at least should be) measured over a business cycle, not a year. The automatic stabilisers has been weakened - only 35% of unemployed currently collects unemployment benefits - but from a high level.

JakeS:

Would suck to have been a first time buyer over the last couple of years, though.

That is what I have been telling friends for at least a year now, not that they listen. Call me Cassandra.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Feb 13th, 2011 at 04:53:12 AM EST
[ Parent ]
Call me Cassandra.

Call ET "The Congregation of the Cassandras".

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 13th, 2011 at 10:49:27 AM EST
[ Parent ]
Being a first time buyer won't be too bad. Being a first time buyer with a heavy loan burden will be...

Consider buying a small apartment for 100.000 euros, all cash. Then the market falls by 20 %, and you sell your apartment for 80.000 and buy a bigger apartment, which used to cost 200.000 but now goes for 160.000. This means you'll have to borrow 80.000 and end up with a 50 % solidity, which is perfectly fine.

Now, imagine there would be no crash. Then you'd have to borrow 100.000 euros instead of 80.000 to get that bigger apartment when you sell your old apartment.

Furthermore, as long as you are debt free in your old small apartment and are not looking at moving to a bigger place, the market value does not matter a fig to you. It's your home, and it'll produce that service just as well no matter if the market booms or goes bust. The only way you lose is if you move to a smaller place, but given that you are a first time buyer who already lives in a small place, why would you?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Feb 13th, 2011 at 11:47:04 AM EST
[ Parent ]
Indeed, this reasoning works if you can buy cash.

In practice, most people will have to take a 15, 20 or 25 years mortgage and if they have to sell at 20% less than you bought, they'll discover the joys of negative equity.

Then again, if you have several hundred grands available, you might imagine a better use for your money than overpriced real estate.

by Bernard on Tue Feb 15th, 2011 at 04:12:44 PM EST
[ Parent ]
Looks like France is the only remaining country in Europe where the housing bubble hasn't popped yet. And many politicians don't want to rock that boat -- elections in 2012, you know. Professionals in the sector expect another 5 to 10% price increase in 2011.

As long as cheap credit continues to fuel the fire, the party may continue. The general sentiment among the public is still to perceive housing as "safe" and "solid", as opposed to other investments, stocks or PIIGS debt, especially with all the propaganda about retirement pensions being endangered: having "a roof over one's head" upon retirement becomes a safety imperative. Curiously, getting heavily indebted for more than 20 years doesn't feel "dangerous" at all.

by Bernard on Tue Feb 15th, 2011 at 04:49:08 PM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]