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Swedish housing price indicator close to pre-crisis highs

SEB's Housing Price Indicator increased further to 51 in September, bringing the indicator to the highest level since July 2007, before the start of the financial crisis.

According to a survey commissioned by SEB, 61 per cent of the responding households expect house prices to rise, while only 10 per cent expect prices to fall. 20 per cent expect unchanged prices. Regional developments were mixed. The rise in the headline index was mainly due to increased optimism among previously weak regions. Sentiment in the south of Sweden recovered strongly to levels more in line with other regions. Sentiment in Stockholm and the Southwest declined slightly from high levels.

Less of a Riksbank issue

Signs that the housing market is picking up will contribute to concerns for household lending. However, the government's decision to give the Financial Supervisory Authority responsibility for macro prudential policy should, according to SEB’s economists, lessen the pressure on the Riksbank to act against financial stability risks. Furthermore, the Riksbank has already factored in a slight acceleration in lending in its forecast. Thus, SEB’s experts do not see housing market developments as an argument for early rate hikes.

The strong increase in the housing price indicator during 2013 has been only partly reflected in housing and lending data. House prices have been on a slight rising trend during the past few months but the housing price indicator suggest scope for continued rising prices. The downward trend in household lending has stopped but while there may be early signs that lending growth is picking up it remains far below the levels during the boom years before the crisis.

SEB’s economists forecast lending growth to rise to 5-5.5 per cent on an annual basis, from currently 4.8 per cent. A sharp acceleration in lending is likely to be met with further measures to rein in lending from the Financial Supervisory Authority.