Sweden’s Manic Housing Market Gets Jolt From Rate Cut

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Swedes eager to buy a home in Stockholm must play by a new rule: Bid on the apartment before it’s shown to the public.

The pace of housing sales in the capital city has quickened so much that buyers often have to make a deal almost immediately after the property is listed. Those who wait for an agent’s tour could lose the chance to even submit an offer.

“For the buyers, this is very frustrating as the normal sale in Stockholm now takes two or three days, sometimes one,” said Fredrik Helmstrand, chief executive officer of broker Skandiamaeklarna. “From an international perspective, that is completely insane. Someone who wants to move here may think it should take a couple of weeks or months until the house is sold. That is not the case.”

Housing prices in Stockholm have reached a record as demand outstrips the supply of apartments. A quarter of all properties sold in the capital last year changed hands before they were shown to the public, according to nationwide housing ad website Hemnet.

“The sales process is faster, with more and more houses being sold before the viewing,” Hemnet spokesman Staffan Tell said by phone. At the same time, the number of houses and apartments for sale is at a record low, he said.

The central bank’s move on Feb. 12 -- lowering its benchmark rate to minus 0.1 percent for the first time in its 347-year history -- threatens to further stoke demand in the housing market. As the world’s oldest central bank fights the specter of deflation, its unprecedented easing may also boost household debt, which policy makers have repeatedly warned poses a threat to the economy.

Taming Debt

Hours after taking interest rates below zero, Riksbank Governor Stefan Ingves told Bloomberg TV that other policy makers need to tame household debt while the central bank focuses on deflation. Swedish headline consumer prices fell an annual 0.2 percent in January, dropping for a sixth consecutive month, Statistics Sweden said on Feb. 17.

“There are a number of things that others can do in order to ensure that things don’t get out of hand on the mortgage side,” Ingves said. “Our households are borrowing too much, and the market is moving up, in my view, too rapidly.”

The Riksbank cut its benchmark rate to zero in October, which helped push credit growth to an annual 6.1 percent in December, the fastest pace since August 2011.

Home prices rose an annual 9 percent in January, according to Svensk Maeklarstatistik AB, which compiles monthly price data. Values have gained 12.4 percent in the past 12 months, according to the Nasdaq OMX Valueguard-KTH Housing Index.

Rates Drop

“In the past six months, the Riksbank has changed to a more expansionary course, which has successively influenced the housing market,” Torbjoern Isaksson, chief analyst at Nordea Bank AB in Stockholm, said. “There are very strong trends right now in the housing market, with prices that have risen fast for a long time. In addition, credit growth is high and accelerating, it seems.”

The Riksbank’s latest rate cut is pushing down borrowing costs, which are already at their lowest level in more than four years. Nordea reduced mortgage rates on most of its home loans by between 0.05 and 0.15 percentage points starting on Feb. 18 after the central bank’s easing lowered the lender’s funding costs. The Nordic region’s largest lender shaved the three-month mortgage rate to 2.05 percent from 2.15 percent.

Svenska Handelsbanken AB, Sweden’s second-largest mortgage lender, followed suit, as did Danske Bank A/S’s Swedish unit and Laensfoersaekringar Bank.

‘Extreme’ Conditions

“It’s extreme that interest rates are this low,” said Bo Soederberg, head of analysis at the Swedish National Board of Housing, Building and Planning. “Generally, when interest rates fall, it stimulates borrowing. Cheap mortgages seem to be inflating prices, and even lower mortgage rates will probably contribute to a further rise in house prices.”

Nordea earlier this month also raised its forecast for house prices. They will rise 10 percent or more in 2015, compared with an earlier estimate of 5 percent this year.

Sweden’s Finance Minister Magdalena Andersson has expressed concern about monetary policy easing. She told reporters at parliament in Stockholm on the day the repo rate went negative that there is “always a risk” that such moves “don’t have an effect on the real economy but lead to increases in the prices of various assets,” including housing.

Public Clash

The government in 2013 handed the Swedish Financial Supervisory Authority the main responsibility for monitoring and addressing housing prices and credit growth and the risk they pose to the economy. That followed a public clash between the financial regulator and the Riksbank over which authority was best equipped to handle housing risks.

In addition to capping mortgages at 85 percent of property values in 2010 and increasing capital requirements for banks, the regulator has also announced plans to force homebuyers to pay down new mortgages to 50 percent of the purchase price.

The Riksbank’s latest cut may force lawmakers to take further measures to help expand the country’s housing stock.

“This puts increased pressure on politicians to do something about the low mobility on the housing market, which drives asset prices higher and increases indebtedness,” Anna Fellaender, chief economist at Sweden’s largest mortgage lender, Swedbank AB, said.

Swedbank Chief Executive Officer Michael Wolf said in a report on Feb. 3 that Sweden needs more housing to cater to a growing population and urbanization -- trends that “provide the potential for economic growth.”

‘Insufficient Measures’

“Unfortunately, the measures that have been taken to date to increase the housing stock and stop the price rise have been insufficient, which is pushing households further into debt,” Wolf said. “We need more infrastructure investment in combination with a faster pace of housing construction, a development to which we will gladly contribute.”

Both Ingves and the financial regulator have also called on politicians to start reducing‘ tax deductions on mortgage interest payments as they give households an incentive to borrow.

For now, buyers have to scramble quickly to even make an offer on an apartment. In some areas of Sweden, almost half of all homes are now sold before agents hold tours of the properties, said Helmstrand, the Skandiamaeklarna CEO.

“It feels like an unhealthy situation, as you are forced to buy far too hasty,” Helmstrand said. “The time buyers have to see what they’re purchasing, and to think about whether it is really what they want, is far too limited.”

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