Swedish House Prices: The Latest Bubble Warning


#1

Swedish House Prices: The Latest Bubble Warning -> seekingalpha.com/article/168761- … le-warning


#2

See also my post here.

I viewed a few properties in the summer in Sweden and the EA’s were all trotting out the “mortgage rates are so low” (1.51% variable!) line as an encouragement to buy.

Yet even with historically low rates, the number of people getting into trouble with repayments is rising. Another study shows that people are not preparing for the inevitable rise in rates, so regardless of what happens with the Baltic States it is not going to be pretty. It’s just a question now of how ugly it gets.

On the positive side even at their seemingly inflated present prices the places I looked at were still better value than comparable properties here at present.


#3

Prices here have gone insane in the last 5 years.
Sweden was late to the bubble, prices only really started going up in 2004. They’re now up 50%.
And prices are now at all-time highs. They went down 10-15% last year, but have gone up by that
much again when rates were cut to 0%.
The key statistic here is that the avg time to amortize a mortgage in Sweden is 91 years!
That’s even more crazy than in Ireland.
Also, they have invented terms here to get people to loan more money. They divide up your house price into
(1) 10% cash contribution
(2) 20-30% top loan (that you nowadays should amortize)
(3) 60-70% bottom loan (that nobody here ever amortizes)
The notion of a bottom-loan is part of the jargon here, which is shocking. Even at a variable rate of 1.5%,
people aren’t paying off their capital. They loan max and then see what they can buy. Same as happened in Ireland.
What is interesting is that even with increasing unemployment, stagnant wages prices are rising.
Nearly all loans are now variable and people don’t amortize. Classic bubble.

The reason why prices are a bit lower here than Ireland is because of the cost renting is so low here. Typically a 2-bed in the city (if you ever to get a rental contract) would be 500-600 euro, warm. So buying means getting less for your cash.
Just have to convince the missus now of these arguments.


#4

Thanks for that James, it helps to join some of the dots!
I couldn’t figure what was driving prices when income tax rates are relatively high and consequently disposable incomes relatively low. To find that 60-70% of the mortgaged amount is interest only explains it and makes one realise that it’s likely to get very ugly when rates inevitably rise especially if people are maxing out their repayments at these low interest rate levels.

Would you have a link for that handy? ((I svenska är bra) I can use google translate! :smiley: )

Do you have any ideas on how this is going to play out?
What are personal bankruptcy laws like there are they tough like Ireland’s or no so, like the UK’s? Were there large scale repossessions after the last bust in Sweden? If so do repos get offered at auction or do they get fed back into the standard EA system?
What I’m getting at is whether it’s likely to be a short sharp correction when it comes or will it be a long drawn out affair?


#5

Here’s a link claiming 93 years avg amortization time:
fi.se/upload/20_Publicerat/3 … 2008_6.pdf

Here’s a good blogger who covers the housing mania in Sweden:
flutetankar.blogspot.com/

I think it’s going to play out the same as in every other country that had a housing bubble. Return to mean. The riksbank have pumped in 5 billion euros to banks to loan out this summer. But eventually, rates will have to rise, and people don’t do the sums what happens when rates rise. Same as everywhere else.

Bankruptcy laws are, I believe, that the banks are allowed to pursue your assets - no jinglemail here. Not sure where the UK’s laws are, but Sweden is not like the US. People generally don’t default here.
The rate of repossessions has been low to date. I haven’t seen any auctions - doesn’t mean they don’t happen. There is no speculators, though. Laws on what you can charge for renting out property prevent you from making a profit. A lot of people who have first-hand rental contracts rent out their places out - however, if they make a profit on it, you can pursue your case to one of the housing organizations here and get the profit they made back!

Regarding whether it’ll be drawn out or short-sharp. We already had a short-sharp pull back last year in autumn/winter. Prices dropped 15-20% in about 6 months. But when rates went to 0%, those drops have erased.
The rate of prices falling will be directly proportional to how fast interest rates rise. Rising unemployment hasn’t affected prices one bit. Last year prices were 20% lower with rates at 4.75%, so I guess by 2012, if we get back to 4-5% ratews, I would expect prices to drop at least 20%.


#6

Swedish central banker says rates need to rise soon -> xe.com/news/2010-05-11%2013: … ?c=3&t=104


#7

#8

Am I missing something here?. Looking at apartments listed here, it seems the prices are very reasonable

thelocal.se/property/?county … e=&search=

Thats not even a decent property website, so I’m guessing there’s better than that available.


#9

Thelocal.se are just relaying links from another site called booli.se which covers the entire market.

Apartment purchase in Sweden is a little different, what you are purchasing is the right of membership of an association which actually owns the entire apartment block. You then have to pay a monthly fee (avgift) to the association, the amount of which you will also see on the property listing. But it is probably fair to say that prices are generally cheaper than in Dublin, but then where isn’t?

As an aside I heard on radio here the other day that inventory of property for sale has reached an all time high (sound familiar?) and the Swedish central bank has just increased the base rate by a quarter of a percent to half a percent and have indicated that this is just the first step in returning rates to “normal” levels, which I would assume to mean about 4%. When you consider that most mortgages here are structured so that 70% of the mortgage is “interest only” then it’s not hard to suspect that their is going to be some pain ahead.

This new build house is a good example of how bubbly some new house prices are, 140 sq M house on a 788 sq M plot in a not particularly outstanding area costing approx. €485,000.


#10

Ah ok… you learn something new everyday.

I was talking to someone over the weekend who has bought in Stockholm relatively recently, and was thinking that prices were going to be pretty stable for the next few years. He’d resisted buying in Dublin for a decade while he lived there, but felt it safe to do so in Stockholm even though he described prices as being ‘Celtic tiger level’.

Looks like it might be wise to hang back and see how things develop over the next few months


#11

Prices still seem stable, even if they dropped in Stockholm for the second month running. Some price drops blamed on the impending election

thelocal.se/28390/20100816/

The mortgage cap seems a sensible idea.


#12

What it says to me is that the powers that be know that house prices are in bubble territory and they have started to tinker with things to try and cool it down.

The actual effect of increasing the deposit required from 10% to 15% will have little net effect on house prices as people are still allowed to take out a term loan for the deposit they are just not allowed to offset the interest against tax. It will of course drive up the cost of borrowing (but will generally only effect FTBs who don’t have any equity).

What really needs to be tackled IMO is how mortgages are structured here (as jamesblonde outlined in his post above) reducing and eventually removing the “interest only” portion of the loan so that it is back to proper repayment mortgage, but the powers that be know that that would cause a wholesale collapse in prices and so they seem unprepared to tackle it.

Danske Bank (the tell it like it is owners of NIB) issued a report in early July saying that they taught that house prices were on average 20-25% overvalued in Sweden, Link to story in Swedish

Google translation.

The Riksbank have also started to raise interest rates here and said that it is the start of the return to “normal” rates, what level they mean I don’t know but I was playing around with an online mortgage calculator here the other day and if base rates go to 4% it will mean that monthly repayments will double compared to at present…


#13

They’re possibly/probably right. I only have experience of Stockholm and the rental market rather than the buying market (going to see how I survive a swedish winter before I’d be tempted), but the lack of supply relative to demand is scary when compared to Dublin or other places. Also a lot of the supply seems to be of old apartments built in the 70’s/80’s that are easily showing their age. Its whats surprised me the most about Stockholm, the relatively wealthy neighborhoods that live in very old fashioned slightly run down apartment blocks. The area I’m living in is a complete homage to the 1970’s, I haven’t yet seen a building that I reckon was built after 1980.

And thats before you consider areas like Akalla, Husby, Rinkeby, Tensta etc that are products of the Million Program, and where the immigrants have been shunted into

en.wikipedia.org/wiki/Million_Programme (I know you know this BrendanG, just putting it in for idle passersby)

Its made me wonder about Ireland in 20-30 years time. With so much overbuilding in the 90’s/00’s, and with oversupply meaning there’s no need to build anything new for possibly a decade at least how will it look in 20-30 years time?. Have the apartments of the 1970’s aged so badly because they were the first generation of apartment blocks, or will apartment blocks built now age just as badly?


#14

lol Didn’t know that! Assume nothing! 8DD

In the small village where I live the houses are more from the 19th. century than the 20th. but despite the harsh coastal weather seem to stand up well when properly maintained.

Apartment condition is I think a lot down to how the housing association has maintained the block, my wife’s grandparents lived in what appears to be a million programme apartment in Hageby in Norrköping and the place was very well maintained. About 5 years ago the association renovated all the bathrooms, rewired the place and upgraded the windows from double glazed to tripled glazed, the monthly “avgift” went up considerably as a result.

Getting back to the point on mortgage structure, I’d love to know what people who have bought in recent years with 60-70% of their mortgage interest only are planning to do when they reach retirement? Perhaps they intend to sell up and move into a smaller apartment or winterised holiday cabin as many appear to do here now. Or perhaps they just see it as a better option to rent the money to buy the house rather than renting the house itself?


#15

Riksbank raises base rate to 0.75 percent

https://www.youtube.com/watch?v=PeyOnNple4M


#16

Prices back up… hmmm bubbly

thelocal.se/29618/20101014/

This isn’t going to end well for lots of people


#17

bloomberg.com/news/2010-08-1 … sions.html

:angry:


#18

thelocal.se/29828/20101026/


#19

Was thinking about buying an apt in Lund or Malmö, but they’ve had very low interest rates for a while now. When I arrived in early 2009 prices looked good but they’ve been rising since thanks to the cheap credit. Didn’t realise that 60% of Swedish mortgage owners are on tracker loans. That’s gonna hurt when the interest rates go up. They can’t keep it at less than 1% forever…

I was very pro-Euro before I moved to Sweden, complaining to the Swedes about their stupid Krona. But they were able to devalue the Krona for a while there last year and it seemed to help their exports.

Maybe I will buy a holiday home in Ireland instead. In a couple of years, after the dust settles post-IMF/ECB intervention. Rent that out to American tourists and continue to rent in Sweden.

I’m lucky that I have no debt whatsoever. Patience is the key…


#20