Sweden’s Efforts to Fight Housing Bubble Pay Off as Rally Slows

A surge in Sweden’s housing market cooled toward the end of last year, giving policy makers some respite in their fight to contain a potential real estate bubble in the largest Nordic economy.

Apartment prices rose 11 percent and house costs climbed 5 percent in 2013, Svensk Maeklarstatistik said today in a statement. In December, apartment prices fell 2 percent from a month earlier, while prices on single homes were unchanged.

“The high prices after the year’s increase have made buyers a little more hesitant,” said Lars-Erik Nykvist, chief executive officer at broker Fastighetsbyraan, in the statement.

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, said last week that authorities should be worried about the risks.

As Sweden’s house prices have soared, consumers have amassed record debt burdens. Households owe their creditors almost 180 percent of disposable incomes, a level the government and central bank say can’t be allowed to rise.

Though the central bank has warned of the risks lurking in the housing market, it was forced to cut interest rates last month to prevent disinflation, and even deflation, from becoming entrenched. Consumer price gains have hovered well below the bank’s 2 percent target after policy makers kept rates on hold to guard against debt growth.

Housing Bubbles

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.

The Swedish government is tightening capital standards for banks to protect the economy from credit-market risks. Finance Minister Anders Borg said yesterday the government will present a road map in a few months setting out how to continue raising capital demands on Nordea Bank AB, Swedbank AB, Svenska Handelsbanken AB and SEB AB. The four have combined assets that are about four times Sweden’s gross domestic product.

Low interest rates and a shortage of properties have driven prices and debt levels to record highs in Sweden’s biggest cities, Stockholm and Gothenburg. Values rose last year even after the government and the financial regulator introduced a raft of measures to try to cool the market.

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