Riksbank Governor Stefan Ingves may have tried to talk down concerns about the Swedish housing market, but some of the data he released last week as he presented the central bank’s take on financial stability show those who worry have a point.
Consider these bad-news charts (we also threw in a positive one for good measure):
1. Mortgage Risk
With interest rates at an all-time low (the central bank’s benchmark rate fell to zero three years ago and has been at minus 0.50 percent since March 2016), households have increased their reliance on variable-rate mortgages, making them more vulnerable to rate hikes.
2. Market Sentiment
SEB’s Swedish housing-price indicator, which measures the difference between those who expect house prices to rise and those who expect them to drop, has sunk to its lowest level since 2013, with only 43 percent of households now believing prices will rise in the coming year, compared with 66 percent a month earlier.
That report came a day before data for October showed actual home prices falling 3 percent, the biggest monthly decline since 2008. And on Friday, S&P Global Ratings suggested that Sweden’s housing market could lose as much as a 10th of its value from its August peak, as stricter amortization requirements coincide with an increase in supply.
3. Lower Prices
The turn in the market is already evident in buyers’ and sellers’ differing expectations, with the average selling price now below the asking price for the first time in more than three years, according to property listings website Hemnet.
4. Shaky Wealth
Household wealth has been rising in recent years, but big chunks of those gains could quickly evaporate in a housing downturn.
5. Lower Debt (The Good News Chart)
There was also some positive news in the Riksbank report: After the financial regulator started forcing households to amortize on their home loans, the individual debt burdens of Swedes have started to decline.
Danske Bank A/S assesses a 35-40 percent probability of a scenario that sees Swedish housing prices fall 15-20 percent. It estimates that such a decline would shave some 1.3 trillion kronor ($157 billion) to 1.75 trillion kronor off households’ housing wealth.
But over at the Riksbank, Ingves doesn’t expect such a dramatic drop in Swedish housing prices, in part because of the strength of the economy. He’d better be right, because after going all-out on stimulus over the past three years, he doesn’t have much ammunition left should things turn out for the worst.
To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net, Love Liman in Stockholm at jliman1@bloomberg.net.
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Nick Rigillo
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