Homeowners in the Nordic region’s largest economy “can easily take a pretty substantial correction,” Clausen said in an Feb. 11 interview at Nordea’s headquarters in Stockholm. “Even much more than 10 percent,” though a decline on that scale “is not in the cards,” he said. Nordea estimates household assets are almost three times debt loads.
Low interest rates and a lack of supply have fueled a surge in Swedish house prices, driving the nation’s private debt burden to more than 170 percent of disposable incomes. Nobel laureate Robert J. Shiller warned as far back as January 2012 that Sweden’s property market was in the grip of a bubble, while Paul Krugman, also a Nobel winner, last month called housing developments across Scandinavia “nervous-making.”
All three Scandinavian nations have grappled with overheated housing markets since the global financial crisis started more than half a decade ago. In Denmark, a property boom that peaked in 2007 burst a year later. In Norway, the housing market is showing signs of deflating after prices doubled over the past decade. In Sweden, apartment prices have almost tripled nationwide since 2002, while house prices have more than doubled and are still rising.
According to Clausen, the risk of a collapse in prices is remote, both in Sweden and neighboring Norway.
“We may at any time get an adjustment of the price level, which seems to be happening in Norway right now, and that may happen in Sweden as well of course,” he said. “That’s always the case in a market that goes up -- that sooner or later it will stabilize or go down. But in order for it to be a real risk, you need different drivers in place such as an economic downturn, unemployment and other things.”
Sweden’s AAA-rated economy will grow 2.8 percent this year, more than double the 1.1 percent pace in the 18-nation euro area, according to the European Commission. Sweden attracted investors during the darkest hours of Europe’s debt crisis, thanks to a public debt load that’s less than half the euro area’s average.
Yet a period of low interest rates has spurred a demand for housing that isn’t being met by supply. The shortfall is estimated at about 150,000 homes, which would cost about 400 billion kronor ($62 billion) to build, according to Bengt Hansson, a researcher at the Swedish National Board of Housing, Building and Planning. The figure is equivalent to more than 10 percent of Sweden’s $550 billion economy.
Apartment prices rose an annual 11 percent through December while prices of single-family homes advanced 5 percent, according to data from Svensk Maeklarstatistik.
Finance Minister Anders Borg has responded by imposing some of the strictest bank capital standards in Europe. Last week, he said requirements may rise further, and chided banks for paying out what he characterized as excessive dividends.
“It’s a government’s right and duty to decide these things, how they want the banking system and financial stability to be, and we’ll take whatever capital they ask us for,” Clausen said. “Swedish banks are strongly capitalized on all metrics and it needs to be said again and again that it’s not that we have too little capital -- it’s that the government is using capital for macro-prudential reasons.”
Nordea’s core Tier 1 ratio, excluding transition rules, rose to 14.9 percent of risk-weighted assets at the end of 2013. Svenska Handelsbanken AB (SHBA) and Swedbank AB have the highest common equity Tier 1 ratios among all major European banks, at 18.9 percent and 18.3 percent, respectively, under Basel III while SEB AB’s ratio stands at 15 percent.
“We have a very strong banking sector, which is well covered on all reasonable risks, so it’s not for that reason Swedish banks need capital,” Clausen said. “When I go to Europe, like yesterday in Frankfurt, they talk about Swedish banks being over-capitalized.”
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