Hi Robert,
Saw your post on the Canadian housing market, and just thought I'd mention the Swedish one. The Swedish housing market has been going up throughout the entire financial crisis, thanks mostly to the fact that interest rates are at ridiculous 0.25%. Since the Swedish mortgage market is completely ridiculous, with no one ever paying off the principal (we are all more or less renting from the bank), over 75% of the people continuously having adjustable-rate mortgages (a Swedish tradition), tax credits for 30% of your interest rate costs....well, you get the picture. Since early 2008, interest rate costs have efficiently gone down to about a third. I saw a newspaper item about the record of interest rates - a family managed to negotiate their adjustable interest rate down to 0.8%!!!!
Of course, there is the spicy story of a certain government-backed lending institute (called SBAB) that started the practice of lending out 95% of market value a few years back, has bonus-systems based on how many mortgages their employees can dish out, and has been gaining market shares since late 2008....In a report issued soon after the Fannie&Freddie problems started, a free-market think tank called Timbro made a very clear case for how SBAB could easily be going the exact same way.
One does wonder if anyone ever learns anything. At all. Our central bank has started an investigation into the sustainability of the mortgage market, but even the man on the street is beginning to become aware that the whole thing is going to blow sky-high once interest rates go up. The average loan amount is 5 times disposable income, with 10% having over 10 times disposable income in home loans. The most ridiculous thing? Everyone is busy saying that it's all based on the "sound fundamentals" of Swedish economy, and that since we have a chronic shortage of housing up here in our capital of Stockholm - it really is different this time ....
Best Regards,
// Hans Palmstierna
Tuesday, February 16, 2010
A Report on the Swedish Housing Bubble
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Canada, Sweden, who knows how many other housing bubbles are being blown via meddling government policies?
ReplyDeleteCanada, Sweden, and anyone else in the same boat: let me take through my parents nearly-shuttered neighborhood in Florida so that you can see where you could be heading.
Damn. You could substitute the word "Sweden" with "the Netherlands" here.
ReplyDeleteI especially loved this tidbit:
> Everyone is busy saying that it's all based on the "sound fundamentals" of Swedish economy, and that since we have a chronic shortage of housing up here in our capital of Stockholm
This is EXACTLY what has always been said and still is being said today about the situation here.
The whole "sound fundamentals" BS and the chronic shortage of housing is a complete illusion.
And since everyone depends on high RE prices because their jobs and livelihood are inextricably tied up in the housing market, nobody dare say otherwise.
We have a chronic shortage of AFFORDABLE LOW-INCOME housing, but a huge GLUT of expensive cookie-cutter, anonymous housing boxes people dare call "homes", c.f http://en.wikipedia.org/wiki/Vinex-location
Even today, with the crisis in full swing, the government is throwing every cent it can find at subsidies for both the new suckers (-erm- I mean buyers) and mortgage interest deduction for existing "owners", because if it stops the bubble's gravy train and the prices drop, people lose their homes, end up indebted for years and RE tax revenues vanish.
with no one ever paying off the principal (we are all more or less renting from the bank)
ReplyDeleteDoesn't the central government usually own all the "apartments" in communist countries?
The only major country that has acted reasonably is China. They have steadily increased the required down payment on houses and even more on investment properties.
ReplyDeleteIf only the US had kept to it's old 'racist' rules of 20% down and no loans in bad neighborhoods....