Soaring house prices in Sweden

Negative interest rates in the Scandinavian country have created a property market with quickly growing house prices. Now the current situation has become an "unnecessary reality," a chief analyst at Nordea bank has told CNBC. Here comes a short summary.



"The Riksbank could easily change tack if they wanted to, still growing house prices is an unnecessary reality which we have to live with," said Henrik Unell, chief analyst with Nordea. Sweden's central bank, the Riksbank, had shocked investors in recent years by becoming one of the economic pioneers of negative interest rates.


Denmark, Switzerland and Japan's central banks have all since followed suit. And it is this that which has significantly contributed to soaring house prices. He went onto add, "You really have to be in complete denial if you do not see the correlation between lower interest rates and increasingly high housing prices."


House prices skyrocketing

The CNBC report also informed that according to Svensk Maklarstatistik, a property and trade association of Swedish real estate agents, single-family home prices spiked by 10 percent year on year in September, with apartment prices jumping up by 7 percent year on year.

Sweden's house prices have skyrocketed since the late 1990's which has subsequently resulted in household debt rising to among the highest in the world. In relation to gross domestic product, GDP, household debt jumped up to 84.60 percent in the first quarter of 2016.

In comparison to the U.S. household debt in the world's largest economy decreased in the first quarter of 2016 to 78.4 percent. Though the US is managing its housing prices more effectively, housing supply is likely to become a catalyst for prices rising further still.


Stricter regulations

Anna Breman, chief economist at Swedbank, argued that the country’s housing market is finally slowing down, in part, due to changes to repayments introduced by the Swedish financial supervisory authority. She told CNBC that housing prices are still increasing but at a much lower rate as compared to a year ago. She is optimistic that they will be effective in calming the markets in Stockholm and Gothenburg where house prices have increased the most.


What’s next?

Breman projected that the Riksbank would hold the repo rate at 0.50 percent though does expect the bank to extend its current quantitative easing program through until the second quarter of 2017. The current program is scheduled to finish at the end of the year. Unell agreed but added that as a result of poor inflation figures in Sweden released recently, a rate cut of 10 basis points further into the negative territory should be expected. He also added that monetary policy is the main game in town and Riksbank can immediately slow down the housing market if they so choose.


(Source: http://www.cnbc.com/2016/10/21/soaring-house-prices-in-sweden-an-unnecessary-reality-analyst.html)