Earlier quoted context omitted.
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
Why?
The Shock of Sweden's Housing Market Is Hitting the Country's Currency
21–30 of 456 posts
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#22There 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.
In the UK, around a fifth of mortgages are interest-only, which I guess is effectively an infinite-term mortgage. In comparison, at least you're paying some part of the capital back on a 100 year mortgage. Of course, both are storing up trouble for the future.
https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7...
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#23Earlier quoted context omitted.
> 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.
> A 140 year mortgage can't possibly be appreciably different from renting.
The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So people pay off quickly in the beginning to get some margin on their valuation, but after that when the loan is e.g. 50% of the valuation, people might prefer buying a car to paying off $10k per year on their home. And it's probably better to have a mortgage fixed at 50% forever with 2-3% interest rate, and avoid the car loan with 5% interest.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#24There 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…
Also to add to that, an extreme number of new people immigrating to Sweden, especially under 2014-2016 [1] (which is my personal belief that is the leading cause to the biggest increases in prices). Many municipalities also letting up to 25% of these new people jump ahead the queues leaving Swedes to be even more forced to buy an apartment instead of renting [2].
Also in Sweden for apartments, you don't own it. Most apartments for sale is so called "Bostadsrätter" which means you own a percentage of the association that owns the apartment building(s). If the association/organization has a bad economy and can't pay the debt they could be forced to sell the entire apartment building(s) and you'd loose your apartment while still having a loan to the bank.
Of course you would get that % of the profit, but since it selling in a time of crisis, that would mean you would most likely get significantly less than you otherwise would do.
It doesn't even matter if you have a good economy, the association must have it as well. Lots of those associations or organizations have a really shitty economy and are sensitive to market changes. Especially in Gothenburg and Stockholm.
[1] https://www.migrationsverket.se/images/18.5bc6881815e14db675...
[2] http://sverigesradio.se/sida/artikel.aspx?programid=98&artik...
EDIT: If you downvote / disagree, please explain why? What I stated is pure fact a with a touch of stated opinion which is backed by the numbers.
EDIT 2: I've added sources for the stuff regarding to immigration.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#25When 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…
Totally agree. It seems one of the factors that helped the US until the 90s was that housing was affordable so people could move around easily. A "strong" housing market seems to indicate that there are no productive places for investing and no wage growth so people need to gamble on houses to rise instead.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#26Earlier quoted context omitted.
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.
> A 140 year mortgage can't possibly be appreciably different from renting. The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So pe…
The landlord is also getting the “30% rebate” by claiming interest as a business expense to offset rent revenue.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#27Earlier quoted context omitted.
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.
> A 140 year mortgage can't possibly be appreciably different from renting. The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So pe…
Makes sense. Thanks
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#28When 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…
I agree. The article isn't very clear on what the problem would be, though it does mention deflation. Deflation is bad by axiom, and we must be pathologically afraid of it. If housing prices sink enough, that may mean that the overall inflation rate turns negative, which is deflation, and thus bad. Even if this "bad" thing, in this case, would just mean that people could consume, save, and invest more.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#29When 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…
In Ireland we had a property bubble during the "Celtic Tiger" years, and suffered a major correction after 2007 [1]. Apartments in Dublin the capital city lost about 62% of their value. 10years later and prices are climbing steadily upwards [2]. It's deja vu all over again.
In Ireland we have a national obsession with owning property.
[1] https://en.wikipedia.org/wiki/Irish_property_bubble [2] https://tradingeconomics.com/ireland/housing-index
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#30When 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…
Totally agree. It seems one of the factors that helped the US until the 90s was that housing was affordable so people could move around easily. A "strong" housing market seems to indicate that there are no productive places for investing and no wage growth so people need to gamble on houses to rise instead.
> A "strong" housing market seems to indicate that there are no productive places for investing and no wage growth so people need to gamble on houses to rise instead.
You've just summarized the situation in Prague, Czech Republic.