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The Shock of Sweden's Housing Market Is Hitting the Country's Currency

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Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#11

Post by pathy »

margorczynski wrote: post #6

Are the regulations blocking the development? Considering the demand is so high wouldn't the supply follow by e.g. scaling vertically?

Local municipalities have veto rights to block development. There are also a bunch of rules, often overlapping, than may stop planning. All planning decisions can also be (and are) appealed for years.

There is also a lack of cheap housing, most houses built today are unaffordable to most low/medium earners. This has become an even more acute problem with the recent influx of refugees. This has lead to overcrowding in poorer suburbs.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#12

Post by selectodude »

alkonaut wrote: post #10

There are tons of things inflating house prices. The most important for Sweden are - Deduction of interest expenses from income tax. - Too long mortgages (100 years or more) means nominal prices are high which add to the risk - Historically big mortgages (90, 100 or even 110% of the cost could be financed - yes negativev down payments existed in the early 2000's). - Rent control of almost all flats, meaning no one wi…

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk

That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it.

Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#13

Post by scandox »

matt4077 wrote: post #4
mrec wrote: post #3

The relentlessly negative reporting here would be funny if it wasn't so pernicious. "risk ... backfire ... risks sinking ... worrying". And yet they're explicitly talking about a correction . Making something that isn't correct, correct. You might think that was a good thing. If you don't want a correction, stop pumping up bubbles. You can keep 'em inflated a long time, longer than many people can remain solvent, but…

Entropically speaking, life on earth is also a bubble that will, at least over the really long term, correct.

A correction devoutly to be wished

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#14

Post by opportune »

When will we learn that a "strong" housing market is not necessarily a good thing? High housing prices are great for those who already owned houses but terrible for everyone else (e.g. the entire generations born after prices became inflated). Not to mention people are greedy and will over leverage themselves when interest rates are good. No country should let the "landed gentry" hold them hostage over interest rates or tax policy so that their assets - many of which they do not even actually own - can appreciate.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#15

Post by opportune »

selectodude wrote: post #12
alkonaut wrote: post #10

There are tons of things inflating house prices. The most important for Sweden are - Deduction of interest expenses from income tax. - Too long mortgages (100 years or more) means nominal prices are high which add to the risk - Historically big mortgages (90, 100 or even 110% of the cost could be financed - yes negativev down payments existed in the early 2000's). - Rent control of almost all flats, meaning no one wi…

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it. Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

As an American I am absolutely shocked anybody thought that was a good idea. If an average person making $50k/year finds it affordable to pay $1200/month on housing, they're just going to shop for a house that will yield that desired monthly payment. When interest rates are low, how is this not a recipe for runaway housing costs?

What's worse is that this is actually a huge subsidy for landlords, unless their mortgage terms are limited to be much shorter. A landlord can afford the downpayment to finance many homes at low interest rates, whereas a poorer person may be able to make the payments on such a mortgage, but can't save up enough to afford a down payment.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#16

Post by jacknews »

While a drop in house prices might, in theory, negatively effect the economy in the short term as homeowners, in theory, have less disposable income, in the long term land prices/speculation (and when people talk about house prices, they really mean land prices) are a huge rentier suck on the economy, and should be taxed to the point that speculation or 'investment' in land itself (not the development of it) reaps zero gains.

After all, why should anyone profit merely by owning land, when the value of that land really reflects other people's economic activity and development in the surrounding area.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#18

Post by tonyedgecombe »

estomagordo wrote: post #2

The combination of removing the wealth tax and the introduction of a 30% rebate on all interest costs for individuals have really combined to clusterfuck the Swedish housing market. Now, the interest rebate seems politically impossible to touch, even long term and through minor transitioning. Home ownership is so important to the economy and affects so many voters, that the property owning class always must be looked…

We got rid of mortgage interest relief in the UK so I wouldn't rule it out completely.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#19

Post by moduspol »

selectodude wrote: post #12
alkonaut wrote: post #10

There are tons of things inflating house prices. The most important for Sweden are - Deduction of interest expenses from income tax. - Too long mortgages (100 years or more) means nominal prices are high which add to the risk - Historically big mortgages (90, 100 or even 110% of the cost could be financed - yes negativev down payments existed in the early 2000's). - Rent control of almost all flats, meaning no one wi…

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it. Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

Wow. And I've seen people here (justifiably) roll their eyes over 6 and 7 year auto loans.

A 140 year mortgage can't possibly be appreciably different from renting.

Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency

#20

Post by alkonaut »

selectodude wrote: post #12
alkonaut wrote: post #10

There are tons of things inflating house prices. The most important for Sweden are - Deduction of interest expenses from income tax. - Too long mortgages (100 years or more) means nominal prices are high which add to the risk - Historically big mortgages (90, 100 or even 110% of the cost could be financed - yes negativev down payments existed in the early 2000's). - Rent control of almost all flats, meaning no one wi…

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it. Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

> Your kids might be dead by the time it's paid off, you'll never own it.

Exactly right. I don't know anyone who buys with the intention to own.

Effectively you rent it from the bank. I don't mind, I mean I don't mind renting from the bank. I pay off my mortgage (2% per year, so 50 years) but only as long as its reasonably high, in order to lower interest rate costs and reduce the risk of being under water.

I have no interest in paying it off completely, so I'll stop paying 2% per year when the mortgage is down to e.g. 40% of the value. Obviosly as a banks have zero interest in your customers loans shrinking, it's lost revenue!

The big downside of very long mortgages is that it brings up nominal prices, and thus the volatility

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