Sweden: The World's Biggest Housing Bubble Cracks

Sweden’s property bubble is probably the world’s biggest, despite which it gets relatively little coverage in the mainstream financial media - although that might be about to change. Warnings about this bubble are not new. In March 2016, Moody’s issued a very explicit warning that Sweden’s negative interest rates were propagating an unsustainable housing bubble.

The central banks of Switzerland, Denmark and Sweden (all rated Aaa stable) have been among the first to push policy rates into negative territory. A year into this novel experience, Moody's Investors Service concludes that, from among the three countries, Sweden is most at risk of an - ultimately unsustainable - asset bubble…


"The Riksbank has not been successful in engineering higher inflation, while Sweden's GDP growth continues to be among the strongest in the advanced economies," says Kathrin Muehlbronner, a Senior Vice President at Moody's.


"At the same time, 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 October 2016, the Riksbank’s Governor, Stefan Ingves, spoke in grave terms to the FT about the impact of negative rates on house prices.

But despite a lack of drama so far, Mr Ingves remains worried about a bad ending due to risks over financial stability.


He said: “It remains an issue because we are mismanaging our housing market. Our housing market isn’t under control, in my view.” The ratio of household debt to disposable income in Sweden is one of the highest in the world at more than 180 per cent and the Riksbank estimates it will continue to rise in the coming years.

Last month, we revisited Sweden’s housing bubble (see here) pointing out.

…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.

On Monday, Reuters reported that SEB’s Housing Price Indicator suffered its second biggest ever drop this month.

Swedes turned less optimistic on the housing market in November, a report showed, after figures suggesting a long run of price rises may be coming to an end amid signals that authorities will squeeze mortgage borrowers to reduce the risk of a crash.


Monday’s Housing Price Indicator from banking group SEB posted its second biggest drop ever, declining by 39 points and lagging only a steeper fall 10 years ago. According to SEB, 43 percent of households expect prices to rise over the coming year, down from 66 percent the previous month. The number expecting prices to decline doubled to 32 percent.

The Reuters piece quoted SEB saying that the indicator signaled a slowdown but “does not yet signal outright declines”. A day later and we have clear evidence of outright declines. Here is a summary of the key prices changes for October 2017 versus the previous month in the NASDAQ OMX Valueguard-KTH Housing Index - known as the HOX.

  • Prices for housing prices in Sweden as a whole declined by 3.0% versus September;
  • House prices in Sweden fell by 3.2% and apartment prices by 2.8%;
  • Stockholm house prices fell 4.0% in October and apartment prices by 3.4%; and
  • Gothenburg house prices fell by 1.6% and apartment prices by 1.2%.

With the market starting to crack, we can rely on the regulators, as usual, to take action after the fact. From a Reuters report yesterday.

Sweden’s financial watchdog has proposed a further tightening of mortgage repayment rules to keep a lid on spiralling debt that could spell danger for the cooling property market and the wider economy. A surge in building and tougher mortgage rules have put the brakes on a 20-year bull run in the Swedish property market, but authorities remain concerned that debt levels among the highest in Europe are still rising. The country’s Financial Supervisory Authority (FSA) on Monday proposed new rules to force the biggest borrowers to make larger mortgage repayments in an effort to reduce risks.


“Prices have risen more than 30 percent in the past three years and the risk level is elevated,” FSA chief economist Henrik Braconier told reporters.

Reuters reported this comment from Braconier.

“It is not a catastrophe if prices fall a little.”

And we agree…but what if they fall a lot.


Mementoil God Emperor Wed, 11/15/2017 - 02:25 Permalink

I'm sorry to say that one of the biggest housing bubbles in the world is right here, in Israel.Due to the Israeli central bank insane policy of ZIRP which has been sustained almost constantly since 2009 house prices have tripled, and purchasing a new home is an impossible mission for the average family.I consider this insane situation to be a greater threat to the future of this country than all the Islamic terrorism and Iranian nukes in the world.

In reply to by God Emperor

random999 Mementoil Wed, 11/15/2017 - 05:21 Permalink

well sweden got NIRP so dont ya worry about that.

However as a Swede I must disagree. There is a bubble indeed, and you can find the same bubble all over europe, in sweden it surely is bigger than many european counterparts.

The worlds biggest bubble however, is not to find in europe or your israel.

Its in china without any doubts!

I have seen the most useless realestates skyrocket beyond the stars towards infinity. A standard semi central 3BR apartment has gone from sub 100k to over 1.5m in about 8 years. Well, while some of you living in NY or London might think 1.5m is not so bad, maybe I remind you that we talk about china. The apartment would be on a maximum 70 year long landlease, probably having 50 or so years left. The whole complex would be built with chinese quality. That means rust running from the balconies, pipes cracking up, waterdamage will be found at various places, insulation horrible, there are probably around 40-50 years left until the whole complex will come down by itself. Location, well... I dont want to live in beijing, and if i had to I wouldnt wanna live where that apartment im talking about is located. If i spent 1.5m USD in Stockholm, id get a LOT more apartment for my money. Quality, looks, location, comfort and for the sake of "investment". But yes, stockholm is indeed a big bubble too.

In reply to by Mementoil

random999 random999 Wed, 11/15/2017 - 05:48 Permalink

should add that i dont think the housing bubble will pop properly. Ill explain why:There was a gigantic media propaganda raid. "They" are afraid that the housingbubble is getting to big and have tried to do something about it in media before. This "raid" was enormous and happend at a point of extremly high prices. After a week of daily articles about a housing crash, of course everyone who wants to buy will take the wait and see approach.However you will find people who will be forced to sell! Some people just bought a new house and cannot afford, or most importantly, will not get a 2nd mortgage from the banks to keep both appartments. They litterally have to sell within 1-2 months or they will lose their deposit on the new acquisition. So in the situation, what choice do you have? You will lower the price and try to sell again right?However someone who has a choice, there is no incentment to sell right now. Bankrates are still at records low without any outlooks for raising rates anytime soon. The banks also still lend the same amount of money to the buyers. At the current NIRP rates anyone can easy afford the maximum amount they are allowed to borrow so they will get the best house they can with whatever the banks lend them. For a house seller who has the choice not to sell, they can maybe accept a 10-20% off the ATH prices, but if you go much lower they will rather skip selling and instead take the "wait and see" approach themselfs. There is still an extreme lack of housing in Stockholm, and its still cheaper to buy than renting (even if rentals are undervalued, weird huh?) so the demand will come back at some point, my guess is sooner than later. People who dream of a 50% price drop or more are just dreamers. There is just no reason why that would occur right now.There is a bubble however, but it will not pop now, it will be paid off by currency devaluation or maybe even a currency crash whenever something really happens out there in the world like if the 2008 vulcano thats been growin for almost 10 years would come back with vengence.

In reply to by random999

xzandrax Wed, 11/15/2017 - 01:26 Permalink

But there is still a shortage of homes in Stokholm. So you are fake news. And it's second in one day after Buzzpeed "Russian transfers money for 2016 elections", forgeting to mention that in 2016 there were a parliament elections in Russia.

Mementoil xzandrax Wed, 11/15/2017 - 02:31 Permalink

Define "shortage".If half of the buyers are in fact investors chasing a bubble, and if they are only able to buy homes at those absurd prices thanks to ZIRP, then it's not real demand, but artificial demand which was created by the central bank and will evaporate once interest rates go up, even a little bit.

In reply to by xzandrax

Piranha xzandrax Wed, 11/15/2017 - 03:27 Permalink

oh another idiot who fell for the supply/demand propaganda......well guess what, insert the cost of borrowing and how easy it is to borrow into the equation and you will be better off understanding how prices have risen the past 20 years, if you throw money at something prices will rise even with a balanced supply/demand sideoh yeah and then add all the taxpayer funded subsidies - that makes the property owner feel like he or she cant loose ever

In reply to by xzandrax

slipreedip Wed, 11/15/2017 - 02:03 Permalink

But I THOUGHT Australia had a housing bubbleor noit was that housing bubble in Vacouveror was itLondon?????,or New York where that billionaire lost a few million on his apartmentor was it the ghost cities in China...I keep losing track, which one is going to start the next GFC?

Aerows Wed, 11/15/2017 - 02:37 Permalink

There are two countries that terrify oligarchs of all flavors.  Sweden and Norway.  The King of Norway took the bus to the ski slope.  He had no fear.  As he said, "I have 10,000,000 bodyguards".  He does. Every Norweigian.  The whole "They are socialists!" show is coming to an end.  We are learning that it is probably a good thing to be our brother and sister's keepers.  That it is important to stick together.  That it is important to be a family.  Failing is failing whether you do it separately or going out in a blaze of glory.  I'd rather not fail and instead, succeed with family, friends and not regretting.   

css1971 Aerows Wed, 11/15/2017 - 03:23 Permalink

They aren't socialist.Socialism is defined by the socialization of the means of production. I.e. nationalization.So what are they then?Well the half way house between liberal capitalism and socialism is Fascism. They are fascists not socialists.Social welfare systems like much else are pyramid schemes... They demand growth to function. Population growth specifically. And that's what we've had for the last 70 years, so they just about worked, the young paying for the old and unable.But populations are now declining. The pyramid has no base. There aren't enough young to pay for the old and unable...So now the fascists are sacrificing their society and citizenry in order to save the system and egos.

In reply to by Aerows

Arnold css1971 Wed, 11/15/2017 - 07:24 Permalink

Growing up in Maine in the fifties and sixties,
with a population of less than 250,000 souls,
the chances of knowing or being a couple of degrees of separation from everybody was pretty high.

Then came the War of Southern Aggression.

In reply to by css1971

Mustahattu Wed, 11/15/2017 - 02:43 Permalink

Off the topic.. but it amazes me when I've talked to Swedes about their taxes - they say they are happy to pay high taxes. That mentality is just so foreign. But hats off to Sweden as they are seemingly doing well and still have their own currency.

TeraByte Wed, 11/15/2017 - 02:44 Permalink

Isn´t it a conundrum that most of wealthy citizens on the planet are living in countries, where their disposable income ratio to housing prices is the lowest.

css1971 Wed, 11/15/2017 - 03:35 Permalink

Houses are for living in, not investments.  like everything else, lower prices are better than higher prices.Any government which doesn't act to lower prices is acting for bankers not citizens.P.s. shock horror, prices started taking off post Nixon shock.

IvannaHumpalot Wed, 11/15/2017 - 04:47 Permalink

mass migration = property bubble. Before you know it, rich property developers are lobbying for even more open borders to fill up their little boxes. But sweden makes me horny for hot blonde blue-eyed swedish men. Please send some

Last of the Mi… Wed, 11/15/2017 - 07:52 Permalink

negative interest rates sustain asset prices for banks that have government protection from market based asset pricing. Open the markets to true price control in asset pricing and negative interest rates are unnecessary. it is classic financial intervention for the sake of a few making every one else pay. On a long enough timelline. . .  and it should also apply to banks and banksters attempting to manipulate the economy. 

Stuto Wed, 11/15/2017 - 11:15 Permalink

Any one with money is leaving - Hungary seems to be a popular place to go.
Every other day there is a terrorist bombing. New immigrants will likely leave as global cooling progresses.

Batman11 Wed, 11/15/2017 - 12:44 Permalink

The half-baked neo-liberal ideology was rolled out globally and there is a price to pay.The housing boom features all the unknowns in today’s thinking, which is why they are global.This simple equation is unknown.Disposable income = wages – (taxes + the cost of living)You can immediately see how high housing costs have to be covered by wages; business pays the high housing costs for expensive housing adding to costs and reducing profits. The real estate boom raises costs to business and makes your nation uncompetitive in a globalised world.The unproductive lending involved that leads to financial crises.The UK:https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.pngThe economy gets loaded up with unproductive lending as future spending power has been taken to inflate the value of the nation’s housing stock. Housing is more expensive and the future has been impoverished.US:https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.pngUnproductive lending is not good for the economy and lead to 1929 and 2008.Neoliberalism’s underlying economics, neoclassical economics, doesn’t look at private debt and so no one really knew what they were doing.The housing boom feels good for a reason that is not known to today’s thinkers.Monetary theory has been regressing since 1856, when someone worked out how the system really worked.Credit creation theory -> fractional reserve theory -> financial intermediation theory“A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Wernerhttp://www.sciencedirect.com/science/article/pii/S1057521915001477Economics is the opposite of a science, it regresses over time.“…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015. He wouldn’t know.Bank lending creates money, which pours into the economy fuelling the boom; it is this money creation that makes the housing boom feel so good in the general economy. It feels like there is lots of money about because there is.The housing bust feels so bad because the opposite takes place, and money gets sucked out of the economy as the repayments overtake new lending. It feels like there isn’t much money about because there isn’t.They were known unknowns, the people that knew weren’t the policymakers to whom these things were unknown. 

Batman11 Batman11 Wed, 11/15/2017 - 12:45 Permalink

The problems with the real estate boom became apparent at the end of the 1980s when many nations experience real estate busts including the UK. Japan was a whopper and someone there got to work finding out what went wrong.The UK waited till that bust was over and started again (see graph), we don’t learn from our mistakes.Richard Werner was in Japan at the time of their real estate boom and worked it all out.Productive lending goes into business and industry and gives a good return in GDP.Unproductive lending goes into real estate and financial speculation and it shows up in the graphs above as it doesn’t give a good return in GDP.Excessive unproductive lending leads to financial crises (1929, Japan 1989, 2008).No one took any notice.Pay attention now for heaven’s sake – learn all you need to know in 15 mins.https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3s

In reply to by Batman11

Batman11 Batman11 Wed, 11/15/2017 - 14:25 Permalink

The people to whom the known unknowns are known:Steve Keen - Minsky moments and affects of debt on the economyRichard Koo - After the Minsky Moment, studied 1929, Japan 1989 and 2008.Richard Werner - Money and debt, bank credit and how it must be allocated for economic success, studying Japan around 1989Michael Hudson - The history of economics, the difference between earned and unearned income.They have each looked into different aspects of today’s unknowns, so you need to read up on all of them.Policymakers can now understand the financial instability and inequality of the neoliberal era.

In reply to by Batman11