A successful real estate agent once told me: the market price is driven by the threee "D"s: Death, Divorce, Debt.
The Shock of Sweden's Housing Market Is Hitting the Country's Currency
51–60 of 456 posts
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#52Earlier quoted context omitted.
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.
Same in Ukraine
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#53Earlier 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...
I would agree that my interest only mortgage is storing up trouble for my future. However given I bought my 1st house in 1996 with no deposit, the reality is that interest only has worked well given that I have leveraged the housing market over 20 years and have now have a mortgage that is around 40% of the value of the house and is probably enough to move somewhere significantly less expensive and retire.
However I recognise that my gain is also a problem for my teenage daughter who will struggle immensely to get on the housing ladder. In the UK, it really does not help that housing is considered an investment opportunity. I have a feeling rent control is the only way we will ever get to the point where we remove this 'investment' opportunity.
More interestingly, it's within landlord's interest to work with developers to ensure whole developments are primarily bought up by landlords to maintain the value of housing stock.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#54Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#55If falling house prices are so problematic, then why do governments allow house prices to rise so sharply?
If house price stability was explicitly a part of our central banks' mandate, we wouldn't have such ridiculously low interest rates, people wouldn't be borrowing vast multiples of their salary to buy a house, and we wouldn't have the sword of damocles hanging over us in the form of another property slump.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#56There 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…
100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) instead of renting from a landlord?
> Because prices are too high for average folks to purchase otherwise
Yes. In a sell to the highest bidder, you aren't going to win with the amount you can borrow over 30 years, if the people bidding against you borrow on 50 or 100 years. Simple as that. So without any caps, people will request long mortgages simply to be able to win these auctions. Should be noted that this is now developing backwars again, and "peak insanity" was early 2000's. What we are seeing now is to a large extent the effect of common sense on the prices. The attempts to stop the insanity over the last 5-10 years (e.g. down payments went from 5, to 10, to 15 to 20 % etc) unfortunately coincided with negative interest rates, meaning people could still push prices up. Now we are finally seeing the effect.
> or because people prefer "owning" (renting from a bank) instead of renting from a landlord?
Yes, there is effectively zero renting of 1-family homes. If you rent, it's a flat. And there are very few flats to rent. A LOT of the people having to buy these expensive homes would rather rent, but there is nothing to rent.
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#57Earlier quoted context omitted.
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 per…
Homes are important to people and they tend to buy as good as they can afford. When employment is stable and interest rates are low people will spend more because they can and feel safe doing so.
Early movers purchase a higher grade of home than they could have previously. Eventually this shifts the market as a whole as income distribution remains stable. Then people buy the same house they would have previously at a higher price. Now nothing has changed and people are more in debt as the cycle returns to normal, if it ever does.
Plus the whole investor (foreign and domestic) vs owner occupier discussions we are seeing plenty of...
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#58Earlier quoted context omitted.
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.
Could this be a result of Ireland being somewhat of a tax haven? If there's a lot of capital just sitting in Ireland waiting to be repatriated, it might make sense to invest that money within Ireland in the interim. That would increase demand for housing in the short term. The main thing to worry about would be that your housing market could experience a crash whenever that money does get repatriated
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#59Earlier quoted context omitted.
100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) instead of renting from a landlord?
> Because prices are too high for average folks to purchase otherwise Yes. In a sell to the highest bidder, you aren't going to win with the amount you can borrow over 30 years, if the people bidding against you borrow on 50 or 100 years. Simple as that. So without any caps, people will request long mortgages simply to be able to win these auctions. Should be noted that this is now developing backwars again, and "pea…
Makes sense. So, if you don't mind me asking, how much are people paying for an average home? How much is an average salary?
Re: The Shock of Sweden's Housing Market Is Hitting the Country's Currency
#60If falling house prices are so problematic, then why do governments allow house prices to rise so sharply? If house price stability was explicitly a part of our central banks' mandate, we wouldn't have such ridiculously low interest rates, people wouldn't be borrowing vast multiples of their salary to buy a house, and we wouldn't have the sword of damocles hanging over us in the form of another property slump.
The housing market in Sweden has been like borrowing money to buy stock and while everyone earns a profit, no one complains and it would be unpopular to make a change politically.