Trees Don't Grow Into Heaven, One Day They Will Come Down: The Stockholm Housing Market

In Sweden, owning your apartment, villa, or whatever you call home, is relatively cheap at the moment. The Swedish Central Bank (Riksbanken) has Monday decided to lower the already low interest rates with an additional 0.25%, which in practice means that the interest rate is now 0% (zero, for those of you who thought I might have made a typo). For people with large saving accounts this is not that great, but if you have a decent debt, it makes life a bit easier.

As for some this might be a reason to bring out a bottle of champagne, this also has a downside. The prices for housing will probably be even higher when loans are getting cheaper. In a city where there already is an overheated housing market, this might not be the best news. On August 30th the Economist published an article called ‘House Prices in Europe are Losing Touch with Reality Again’. The main star in this article? Stockholm. Only in the last year the average housing prices have gone up with 11%!

Expensive looking houses in inner-city Stockholm. Photo by:  Dirk W de Jong

Expensive looking houses in inner-city Stockholm. Photo by: Dirk W de Jong

A survey done by Nordea, one of the largest Swedish banks, shows that Swedes increasingly think that housing prices will continue to grow (Currently 52% of Swedes). In addition, less Swedes believe that interest rates on their mortgages will rise (Only 32% think that interest rates might rise). And for the moment they might be right, according to predictions from the Swedish central bank interests rates will not go up until late 2015.

However, rising interest rates are not the only factor that play a role in increased living costs for homeowners. According to an Article in Dagens Nyheter, the Swedish government, in an attempt to prevent extreme debts under its citizens, will introduce new measures that increase monthly costs. Examples of these measures are decreasing the interest deductibility and increasing the minimum amortization.

The latter of the measures has been criticized by banks (of course, they want you hooked), as it would be more difficult for people who fall ill, or face other impacts on their income, to pay for their housing costs. That might be true, but that is exactly what the government wants, because that probably means that that person took the highest loan he (or she) could possibly get.

It will be interesting to see how these prices will develop. Especially, when possible new measures that increase the mortgage prices are met by interest rates that are more "normal". I think the article in the Economist was spot on, Stockholm's Housing bubble is steadily inflating. I have up-close witnessed the extreme drop in housing prices in the Netherlands (see the graph), so I might be a bit more pessimistic than the average Swede I talk to. Trees don’t grow into heaven, one day they will come down.

Change in Dutch housing prices. Source:  Rabobank

Change in Dutch housing prices. Source: Rabobank

Written by Sascha Benes. Follow him on Twitter, Linkedin and .