Is This The Biggest Housing Bubble Ever?

In September of 2015, not long after Sweden followed the SNB and ECB in going "full NIRP", we warned that "Sweden Goes Full Krugman, Gets Massive Housing Bubble", in which we first showed the unprecedented surge in Swedish home prices, which have been the one asset class to "benefit" the most from the Riksbank's ultra loose monetary policy hoping to stimulate inflation, even as broader economic inflation failed to materialize.

Since then things turned increasingly more surreal for Swedish home prices, culminating with a very explicit warning from Moody's in March of 2016, in which the rating agency warned that as a result of NIRP, the country is most at risk of an "ultimately unsustainable asset bubble."

... the unintended consequences of the ultra-loose monetary policy are becoming increasingly apparent -- in the form of rapidly rising house prices and persistently strong growth in mortgage credit", adds Ms Muehlbronner. In Moody's view, these trends will likely continue as interest rates will remain low, raising the risk of a house price bubble, with potentially adverse effects on financial stability as and when house prices reverse trends. In all three countries, households are highly leveraged, and while they also have high levels of financial assets, returns on these assets will be under increasing pressure if the negative interest and yield environment persists.

Moody's also said that "the Riksbank will find it difficult to achieve its objective of significantly pushing up consumer price inflation in a deflationary global environment, while the sustained and strong growth in mortgage lending and house prices risks leading to an (ultimately unsustainable) asset bubble."

Nearly a year and a half ago, we concluded that we expect "this latest warning to be soundly ignored because after all, what else can the central banks do in this global coordinated effort to stimulate economies with ever more debt, which by definition can only work if rates are not only at zero, but increasingly more negative."

Sure enough, since then nothing has changed in Sweden's monetary policy, and at its latest meeting, the Riksbank kept its repo rate at an all time low of -0.50%.

In some ways one almost commiserates with the Swedish Central Bank and its governor Stefan Ingves, the sad looking gentleman shown below...

... who over the past few years has lost monetary independence, becoming a hostage to the monetary policies of his neighboring central banks, especially the ECB. This was on exhibit most recently one month ago, when the Riksbank once again failed to even hint at a trace of hawkishness, while keeping its rate at -0.5% (even lower than that of the ECB).

And while markets have become increasingly convinced that Sweden’s central bank needs to abandon its extreme dovishness as the economy shows signs of overheating - Sweden's inflation recently and finally rose above the Riksbank’s 2% target - suspicions that the ECB will stick with its negative rates well into the future piles further pressure on the Riksbank to keep its own interest rates on hold.

You see, Sweden’s small size compared to the eurozone complicates the central bank’s decision-making: Ingves has repeatedly cautioned that making a move before its larger neighbor risks an unacceptable rally in the krona which could unleash a deflationary tsunami in Sweden... oh and lead to devastating downstream effect on the country's various asset bubbles.

Of course, going back to our discussion of Sweden's housing market, nowhere would the bursting of Sweden's unprecedented asset bubble be more concerning than in the country's home prices. And to get a sense of just how bad it could get, here is a chart from Nordea's Andreas Wallstrom, showing nearly 140 years of real house prices in Sweden's capital, Stockholm, with an emphasis on the exponential surge in the past 2 decades. As Wallstromg sarcastically points out, the big irony in this is that "the current monetary policy regime, which aims for "price stability", started in 1995."

Ah yes, presenting "price stability", aka the world's biggest housing bubble.

Perhaps the biggest irony here is that even Ingves knows how this ends. As the FT reported over two years ago, "Sweden’s central bank governor has warned that new crisis-busting tools policymakers are embracing around the world to counter asset bubbles and other financial dangers are susceptible to political inaction and turf wars. Stefan Ingves, governor of the Riksbank, said so-called macroprudential policies — such as capital requirements and leverage limits — had so far failed in Sweden where house prices and personal debt levels have soared to record levels."

Macroprudential, particularly if markets are going up, up, up is about saying ‘no’. Apparently that’s hard to do,” Mr. Ingves said.

Ironically, to nobody more so than to Mr. Ingeves himself.  And, as one senior banker added in September 2015, “To have such a low interest rate at the same time as Sweden has rather good economic growth and rapid increases in house prices — it seems crazy."

Two years later, the Stockholm housing bubble - as well as the global asset bubble - is the biggest it has ever been.


Anteater Thu, 10/05/2017 - 15:10 Permalink

"Hold and go long! Your trades are 100% liquid at all times."Those are the actual words of a REIT broker I used to have.I got 10c on the $1 after the class-action lawsuit. I learned!

nsurf9 Thu, 10/05/2017 - 17:21 Permalink

ou know you don’t own your house, the banks own virtually every one of them across your neighborhood, town, city, county, state and country - US and Sweden.  In 2008, the banks weren’t protecting you and me, they were protecting the mortgages of the assets they had inflated.  Of course, it didn't hurt Blackrock or GS to pick-up sever thousand of them on the cheap with money we couldn't begin to get, all the time knowing a flood of money would (make even Houston blush) flow for a decade. And, since they control the thief of the buying power of the money, they control the price of every piece of real estate, stock market, health care, education in the country, as the banks and the people the banks enrich themselves. The biggest irony is - we and our politicians keep letting them do - and we don't even know who owns Federal Reserve, controls the THEIR strictly fiat based money, or to whom the Fed may have sold our debt.   Although, I shudder at the thought of politicians controlling the money thru the Treasury, it is the correct place for it and at least we would know who's controlling it. Worst of all, neither our politicians nor even we paupers even think about lifting a meaningful finger against them.  

itstippy Thu, 10/05/2017 - 16:21 Permalink

Real estate prices are the main factor that drives cost of living in an area.  They affect the price of all goods and services, because everyone has to make enough profit to cover their expenses.The little diner in the village near me in semi-rural South Central Wisconsin sells a nice breakfast.  You get three eggs, two pieces of toast, hash browns, a glass of milk or juice, and unlimited coffee for $4.50 ($6 with the tip).  You sit in a comfortable padded booth, or a padded stool at the counter.  It's unhurried, and they're genuinely glad to see you stop in.  The diner supports the couple who owns it (he cooks, she waits the counter and cashiers) and a hired lady (she waits tables, cleans, does dishes, etc.).How much would a similar family diner in Manhattan have to charge for a similar breakfast?  $25?Driving up real estate costs WILL drive up inflation across the board.  If the locals' income doesn't rise in tune to the rising prices, they'll have to forego the goods and services they used to enjoy.  Very few people in my area could afford a nice family diner breakfast if it cost $25.

Chandos Thu, 10/05/2017 - 16:33 Permalink

Swedes will paythrough the nose and eventually die while precious precious migrants will get subsidized housing in beautiful historical buildings  that have no meaning for the cultural marxist fuck-ups who run the country.

Altesh Thu, 10/05/2017 - 16:40 Permalink

A housing crash is one of the few things which can save Sweden. People have seen their real income soar the last decade, their wealth expanded rapidly and in in the extravagance of prosperity it is very easy to be generous. If swedes felt some pain, they would start to think twice before giving away their prosperity and getting violence, hate and population displacement as a result.  

nobita Thu, 10/05/2017 - 17:35 Permalink

Besides the risks of having an out of control housing bubble there is another factor to consider. We have always had the worlds lowest level of inequality but now we are moving to a two-tiered society, property owners and renters. Those who bought a house or apartment in Stockholm or Gothenburg these last 7-8 years have basically earned two wages, one from their job and one from their property increaseing in value. This is exacerbated by our "interest rate deduction" law where people with loans get 30% of the interest paid back in tax deductions.So basically the renters who have not been part of the property appreciation are subsidising the winners. This deduction is deeply unfair and it is pouring gasoline on the house price fire and it is also politically impossible to remove since so many homeowners are relying on it to meet their mortage payments. If the Riksbank were ever forced to normalize rates we will have tons of households cutting down on spending to meet mortage payments and they also need to start saving in case rates goes even higher less they lose their homes leading to a garanteed plunge in aggregate demand.

nobita ZD1 Thu, 10/05/2017 - 18:04 Permalink

Well we have a shortage of labor and we produce less kids than the replacement rate so we kind of have to import people. That is if you believe that an increasing population is necessary when the system is based on perpetual growth. I think that is unfortunately the case and prosperity is impossible with a declining population (which we would have without immigration). You all seem to adore the japanese for their strict immigration policy but look at their financial situation...FYI I can tell you that the retarded open boarders policy we ran for a few years have now been reversed and the asylum laws are now draconian and harshly enforced. I know a lot of current zero hedgies are consumed by muslim hatred but we will be fine. We are actully becoming uncomfortable with the american "alt-right" obsession of our little country. Worry about your own issues and leave us alone please.

In reply to by ZD1

HRH Feant2 nobita Thu, 10/05/2017 - 20:01 Permalink

Hahahahaha! Let me know how inviting in hordes of Gimmigrants is going to have a positive impact anywhere!

Less than 3% of the sand niggers you invited into your home actually end up being employed. As for cracking down on open borders nonsense? Too late. The damage has been done.

So glad I visited 20 years ago. When Sweden was still Swedish and the streets were safe. Those days are way over.

In reply to by nobita

Ol' Painless nobita Thu, 10/05/2017 - 20:39 Permalink

nobita- consider what would be happening in Japan if the Bank of Japan had not counterffeited...errr...printed an obscene amount of currency to combat deflation. Like currently being seen in every country where a central bank has adopted a similar policy, the freshly "minted" currency found it's way into bolstering investment assets like real estate and stocks. What message does that send to the young people of Japan and those other countries? Could it be the young people believe that prices will always remain unaffordable for them, they have little chance to afford their own home and forget about affording a family. Like animals trapped in a cage, the results are predictable, low birth rates and high rates of depression. Both results avoidable had the central banks counterfeiting been avoided and prices been allowed to track freely. Let us not overlook who directly benefits from the counterfeiting, thoses that own the central banks that in turn get currency at no cost with which to acquire all those assets from people who had to pay a cost(time and toil) to get currency with which to buy assets. The central banks use the argument of a declining population as a smokescreen to hide their ongoing theft. The smokescreen can be blown away with basic economics. If the population is in decline, there will be fewer buyers of homes. In turn, home prices would go into decline. This would make it more affordable/easier for the next generation to buy. This creates opportunity for productive members of the next generation as they would think, "Hey, I can now afford to buy my own place and maybe even one day have a family." Stability returns to both price and population.    

In reply to by nobita

JailBanksters Thu, 10/05/2017 - 19:18 Permalink

Don't you hate it, when the banks tell you now is the perfect time to buy a house (for us, the bank, not you, your screwed), then somebody else tells you, IT'S IN A HOUSING BUBBLE.