As Sweden has sidestepped a bigger downturn while Europe has sputtered, the nation’s housing market has become red hot. Private debt as a share of disposable income has nearly doubled in the past two decades, keeping pace with soaring house prices. Nordea Bank, the Nordic region’s largest bank, thinks prices will rise another 10 percent this year.
This week the nation’s central bank also cut rates to a negative, adding ammunition for those concerned.
A classic bubble? Possibly, but not everyone is worried. Here are five reasons why:
1. Authorities have stopped the worst excesses
After the financial watchdog capped loan-to-value ratios (LTVs) at 85 percent in 2010, the private debt ratio has increased only 4 percentage points, to 171 percent, after jumping 16 points during the previous four years.
2. Half the debt increase from 1994 to 2010 can be explained by falling property taxes and because more people are buying rather than renting, according to the watchdog
Lower taxes mean people can borrow more without increasing their total housing costs. More home owners means higher average debt.
3. Swedes are rich
Their total assets are worth more than 600 percent of disposable incomes. More than half of these are financial, stocks and bonds, rather than housing.
4. Prices have ballooned amid a housing shortage, not on speculation or a big buy-to-let market
Drawn-out planning and strict building codes mean supply has failed to meet demand for years in Stockholm, even as “two bus loads of Swedes” move into the capital each day, according to the chamber of commerce. The city is expanding almost twice as fast as London.
5. Regulations will probably get even stricter this year as borrowers face being forced to pay down on their debt
Politicians are now open to new rules as they try to strike a balance between doing too much—and causing a dramatic drop in house prices—and doing too little.