Swedish Homeowners Sitting on a Ticking Bomb

What has started to happen in Oslo, is now seemingly spreading to Stockholm: Evidence is mounting that the Swedish capital’s crazy, two-decade-long housing price surge could be leveling off.

“Prices have dropped 10 to 15% since this summer,” said Carina Husgard, a Stockholm real estate broker at Bosthlm to Dagens Industri. She was one of several real estate brokers confirming — what one described as a “permanent”—dip in house prices to the Swedish business daily, Business Insider reported.

Swedish homeowners currently have record amounts of loans—a situation that likely won’t be sustainable when interest rates pick up (which they are expected to do in 2018), according to Nordea, the region’s largest bank. Nordea’s new report shows that falling house prices tend to coincide with rising interest rates.

“The times of rising interest rates is beckoning. That means a new reality for indebted households,” notes Johanna Jeansson, a columnist at Dagens Industri, adding that 70% of Swedes’ mortgages are currently tied to variable interest rates.

That exposure could potentially be catastrophic for tens of thousands of households, finds a new survey by brokerage firm Svensk Fastighetsformedling, featured in Dagens Industri.

With even small rises in interest rates, tens of thousands of Swedish households would have problems paying their loans:

- 48% of Swedish households would have to move if their loan servicing costs rose by more than $350 (SEK 3,000) per month. This is around 784,000 households.

- A fifth of homeowners cannot afford any higher living costs, or a maximum of $350, in particular those aged under 30.

- At the same time, 77% of respondents feel no or only slight worry about rising interest rates.

Although the survey is only an arbitrary measure, there is cause for worry in Sweden about overleveraged households at times of zero-interest rates.

Moreover, just like their neighbors in Norway, Swedes are faced with stricter requirements to pay down their mortgages. The Swedish Financial Supervisory Monday moved forward with their support for a tightening of the amortization requirements, whereby households with home loans that exceed 4.5 times their gross income would have to amortize 1% point more of their mortgage each year.

If approved by parliament, the new law would come in to force March 2018, and make the situation even more precarious for thousands of Swedish households.