Where next for house prices in Sweden and hence monetary policy?

Today has seen several strands of economic analysis come together so let us stay with yesterday’s topic of housing but move geographically from the UK to Sweden. There is food for thought in the issue that in the UK Sweden is often held up as an example in areas such as education, However there is more food for thought as I note that we are beginning to see denials that “something is going on” in the Swedish housing market as Todd Terry might put it. From the Financial Times.

There is no reason to anticipate a sharp fall in the Swedish housing market despite a housing boom that has seen prices more than double in the past 12 years, according to the chief executive of Stockholm-based Swedbank. The Swedish residential market will slow somewhat, Reuters reported Birgitte Bonnesen saying on a conference call after the bank’s quarterly results on Tuesday, but the chief executive does not see a risk of a sharp fall.

As Swedbank is the largest provider of mortgage credit in Sweden that is pretty close to an official denial that house prices are going to fall and we have learnt what to do with them! Even it had to admit that it does appear that ch-ch-changes are afoot.

Although she acknowledged the Swedish housing market “showed signs of further slowdown” in the latest quarter and the rise in house prices had “dampened”, Ms Bonnesen said the softening — accompanied by a slowdown in the build-up of household debt — was “positive, as it contributes to more sustainable economic development”.

Ah so a bank claiming that lower lending is “positive” so it would have presented its own higher lending in the boom as negative then would it? Of course as you can see below the Financial Times seems to be more concerned about “The Precious” than the effect on the real economy.

Concerns have grown that house prices — which have reached record levels — and mounting household debts somewhat echo the 1990s Swedish banking crisis. If there is a housing market slump and loan losses rise, that could damage the Scandinavian banking sector.

What is going on?

Sweden Statistics tells us that the credit taps seem pretty fully open for housing purposes.

In August, households’ housing loans amounted to SEK 3 035 billion, which is an increase of SEK 17 billion compared with the previous month and SEK 203 billion compared with the corresponding month last year. This means that the annual growth rate of housing loans was 7.2 percent in August, an increase of 0.1 percentage point compared with July.

In addition to the quantity or flow of loans the price or if you prefer mortgage rate is very low.

The average housing loan rate for households for new agreements was 1.58 percent in August, which is unchanged compared with July. The floating interest rate for housing loans was also unchanged compared with the previous month.

Ordinarily lots of cheap money would lead to surging house prices but maybe we have already seen that.

That gives us a longer=term perspective for Stockholm and if we look wider I note that Aviva investors have just tweeted a chart on asset bubbles which has Swedish property price growth at the top just pipping Canada and New Zealand. If you want a wry smile the surge in house prices began as the inflation targeting era began! But with thanks to Finwire and Google Translate this emerged earlier this month.

The prices of condominiums were unchanged in September. This has risen marginally last month. The villa prices, which remained unchanged in August, rose by 1 per cent. This is evidenced by figures produced by Statistics Sweden on behalf of Swedish Mäklarstatistik

Compared to three months ago, prices for both condominiums and villas have risen by 1 per cent. At year-end, price development is +6 percent for condominiums and +9 percent for villas.

So there seems to be something of a fading and maybe a lull if we add in the bit below.

Generally, we have a somewhat cautious market where we see that an increased supply is not matched by
same increase in sales volume……. we also see a gradual increase in the average time it takes between that
The ads are being put out and the property is then being sold.

So there is more supply and a longer time is required to sell neither of which look bullish.

Is Stockholm the canary in the coalmine?

It is hard not to think of London and in my case Nine Elms in particular when you see something like this.

There is not much optimism to be seen there to say the least. Also are such share price falls even legal these days? Perhaps the Riksbank of Sweden should take a trip to Tokyo to see how the Bank of Japan would deal with such a matter. Or they could simply assume that the official data series is more accurate.

Real estate prices for one- or two-dwelling buildings rose by almost 3 percent in the third quarter of 2017 compared with the second quarter. Prices rose by nearly 9 percent on an annual basis in the third quarter, compared with the same period last year.


There is a lot to consider here so let us bring in the policy of the Swedish central bank the Riksbank.

The Executive Board of the Riksbank has therefore decided to hold the repo rate unchanged at −0.50 per cent and is expecting, as before, not to raise it until the middle of 2018. The purchases of government bonds will continue during the second half of 2017,

As you can see it is full steam ahead for monetary policy with it being very rare amongst major central banks at hinting of continuing very easy policies. We will find out more later this week as its hand may be forced by what the European Central Bank decides and in particular how the Euro exchange rate responds. If the Riksbank had a choice I am sure it would rather be voting on Friday after the ECB rather than tomorrow. Perhaps it can watch the film Bad Timing to fill in the gap.

Also there is something to mull about the state of the real economy summarised here a month ago by the Riksbank itself.

Economic activity in Sweden is strong; GDP grew rapidly in the second quarter and the employment rate is at a historically high level. Inflation has continued to rise and in recent months been higher than expected.

Some would regard that as grounds for a tightening of monetary policy. Of course should it decide to prioritise a weakening housing market with obvious implications for the banks then this would make it easier.

Between 2007 and 2015, cash in circulation decreased by nearly 15 per cent. Cash withdrawals have declined by around a half, both in number of withdrawals and volume of cash withdrawn, over the past ten years…..By far the most common way of paying for goods in shops is by debit or credit card. Around 97 per cent of the population has access to a card…..Sweden is one of the countries in the world where the most card payments are made. The average Swedish citizen made 290 card payments in 2015. The average for the European Union is 104 card payments per year. ( Riksbank in June)


15 thoughts on “Where next for house prices in Sweden and hence monetary policy?

  1. The socialist Utopia of Sweden where workers can no longer afford housing.

    Is there any western nation where the government in cahoots with independent free thinking central banks haven’t re-inflated the 1997-2008 housing/debt bubble to create deceitful economic growth figures.

    But good to see the builders share prices falling, shows there are some glimmers of light of capitalism at the end of the tunnel in Sweden, that wouldn’t be allowed to happen in the crony capitalist paradise that is the UK.

  2. Different country same story.
    Population being fed confetti money created out of thin air by private banks so increasing debt slavery.
    $2T created so far this year by Central Banks $12T since 2008 when there is more of something it becomes worth less.Then again it is worthless it has no intrinsic value and does not fulfill the function of a store of value.
    On a different but related topic I see those loan sharks who exploit the less well off members of society through their despicable Brighthouse shops are in the news,just another branch of the criminal elite exploiting the ill informed populations.

    • Hi PrivateFraser

      We are seeing a few creaks from the UK subprime world aren’t we? It was not so long ago that Provident Financial hit trouble. Now we see the regulator is on the case of BrightHouse. As to its business model well the BBC describes it here.

      “In 2016 a BBC investigation conducted by Ed Miliband, the former Labour leader, highlighted the example of a £358 washing machine that ended up costing more than £1,000.”

      I remember my grandparents and for a while my parents having white goods via the rent to own model but the modern version looks like usury doesn’t it?

      • Hi Shaun yes I remember we used to rent our telly right up till the end of the 70’s
        From British Relay living in Scotland it allowed us to get Ulster tv which was great as we could watch The Big Match on a Sunday.
        Usury is a good description trouble is much of the population are financially illiterate just the way the Government likes it.

  3. Great blog as always, Shaun.
    You mentioned in one of your earlier blogs on Sweden that the Riksbank planned to move to the CPIF (i.e. the CPI excluding changes in mortgage interest rates) from the CPI as its target inflation indicator. This did happen as of September 6, announced in a Riksbank press release (“CPIF target variable for monetary policy”) the next day. At the same time, the Riksbank reinstated what it chooses to call a tolerance band, but is essentially the same as a target range, of one percent to three percent, the same as the Bank of England’s target range. It had dropped using a target range in 2010.
    A report that came out at the same time:
    provides useful background to the decision. The Riksbank did not consider changing the target rate at all. This seems a shame as their own data show that the reduction in upper level substitution bias (what it chooses to call “the basket effect”) when the Swedish CPI went from a chain Lowe formula to a chain Walsh formula was -0.23 percentage points. (This is based on the period 1995 to 2004 (see p.33); the report says 2014 but this has to be a typo.) So there was good reason for the Riksbank to lower the target rate to 1¾% 12 years ago in 2005 when the Swedish CPI went to a chain Walsh formula. House prices wouldn’t be as high now if they had done so.
    There is a disappointing discussion in the paper of different treatments of owner-occupied housing: the opportunity cost approach used in the Swedish CPI is referred to as the alternative cost approach. We are told that the Canadian CPI also uses an alternative cost approach to measure OOH costs. It doesn’t; like the UK RPI, it uses an accounting approach. A CPI is calculated with an OOH(NA) component but not an HICP. I suspect the Riksbank is reluctant to consider an HICP with an OOH(NA) component as an option since it would not have the superior chain Walsh formula possessed by the Swedish CPI.

    • Hi Andrew and thank you.

      Cheers for the detail which poses a few questions. Actually 1.75% might have turned out to be a fairly familiar inflation target in the middle of the last decade as I argued back then that the UK should have reduced its target by more than the 0.5% it did when CPI replaced RPI.

      As to no discussion of changing the 2% target there rarely is when the evidence is that it should be lowered!

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