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

bloomberg.com

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

#31

Post by expertentipp »

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)

This is basically a mortgage and reverse mortgage in one package, isn't it?

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

#32

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.

> Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

It is a bad situation. But on the other hand you can't just change the max mortgage to 30 years either, or remove the interest tax deduction over night, as that would immediately create the problem you were trying to avoid to begin with (an unstable housing market).

I think what they are doing to mortgage lengths is entirely sensible now: they are increasing the required down payments (effectively 25% now) and then requiring a higher pace of repayment initially. That's when it really matters to stability. E.g. if people pay off 3%/year for the first 10 years of their mortgage, it doesn't really matter whether they have a 30, 40 or 100 year mortgage. They will have paid it down to around half the valuation which lowers the risk.

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

#33

Post by manarth »

mhandley wrote: post #22
selectodude wrote: post #12

Earlier 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.

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...

Does the FT article give any details of how that fifth is broken down? I suspect they'd be predominantly buy-to-let; my understanding is that there are significant barriers to getting an interest-only residential mortgage.

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

#35

Post by adventured »

baursak wrote: post #17

I don't get it. When prices are high, it's a housing crisis. When prices are going down, it's a housing crisis. It's almost as if news articles just need to be written regardless of the reason.

That's because those two market situations are the most concerning. Prices haven't just been high, they've been extremely high.

You're not presenting all scenarios however, there's the vast in-between, aka healthy, that sits between bubble and falling.

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

#36

Post by Supernaut »

ptha wrote: post #29
opportune wrote: post #14

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…

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://tradingeconomic…

Your use of the term "obsession" implies a degree of irrationality. Many people, myself included, would contend that the desire to own your own home is eminently sensible.

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

#37

Post by alkonaut »

expertentipp wrote: post #31
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) This is basically a mortgage and reverse mortgage in one package, isn't it?

> This is basically a mortgage and reverse mortgage

We don't have a specific term for "mortgages" as meaning home loans - we treat them as any bank loan. I hadn't heard the term "reverse mortgage" before, so had to look it up. It's not quite that (interests are always paid).

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

#38

Post by marvin »

votepaunchy wrote: post #26
alkonaut wrote: post #23

Earlier quoted context omitted.

> 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.

Yes, but landlords also pay taxes on profits. As a homeowner, you won't pay tax on the difference between rental cost and your mortgage interest payment.

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

#39

Post by lin_lin »

ptha wrote: post #29
opportune wrote: post #14

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…

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://tradingeconomic…

> It's deja vu all over again.

Except for the lack of readily available credit. For the most part, it seems the people paying the high prices are "able" to afford it. The problem is that home ownership (and the security that brings, particularly in Ireland) is not attainable for most young people and families anymore.

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

#40

Post by opportune »

maxxxxx wrote: post #25
opportune wrote: post #14

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…

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.

I think a strong housing market may be the result of lack of productive capital, but I think it has more to do with supply and demand. Most average people pay for a house using a mortgage payment, so when buying a house, they'll be looking for a house that has an affordable mortgage payment.

Let's say Joe wants to spend / can afford a $1000/month mortgage payment. If interest rates are 5% and the maximum mortgage period is 30 years, Joe can afford to buy a house worth $190,000. However, if interest rates go down to 2% and Joe can now take a 40 year mortgage, Joe can now buy a house worth about $330,000. Great for Joe! The only problem is that housing supply is relatively inelastic, so the supply of housing didn't magically increase overnight. When Joe buys a house, he's essentially bidding against a bunch of other people for that house. If those other people's mortgage payments were affected the same way, then the actual effect is that what was once a house worth $190,000 is now worth $330,000.

This sounds like a problem out of an Econ 101 exercise. Either politicians are stupid, or more likely, they know that "homeowner policy" like this can make them and their other rich buddies even richer.

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