08 Sep 2014 10:41

Optimism on home prices close to record in Sweden

The indicator continues to signal a strong momentum on the Swedish house market and suggest that recent acceleration in home prices will continue. Scope for additional Riksbank easing could boost sentiment further in the coming months. The surprise ECB refi rate cut to 0.05 per cent will put renewed pressure on the Riksbank to cut further and suggest a downside risk also to SEB’s forecast of a rate cut to 0.15 per cent in October from current 0.25 per cent. Households' own repo rate expectations declined slightly to 0.41 per cent in 12 months' time. This is above the Riksbank's repo rate forecast for the same point in time but still an historical low. As a comparison, in 2009/10 when the repo rate was also at 0.25 per cent households' rate expectations were around 0.8 per cent at the lowest. Low rate expectations are reflected in continued subdued interest to fix rates with only 4 per cent expecting to do so within the coming 3 months.

Households favour stricter amortisation rules

The main downside risk to housing market sentiment is the introduction of new macro prudential measures. In the September survey we asked households on their views on the need to lower household debt burden. An overwhelming majority – 85 per cent - believe that it is important or very important to do so. Even among the most indebted households - with loan-to-value ratios above 70 per cent - only 16 per cent think that this is not an important issue. As regards which measures should be taken, a large majority (72 per cent) support stricter amortisation rules for new loans, followed by stricter rules for existing loans (66 per cent). Lower loan-to-value ratios and more limited tax deductions for interest are only supported by 38 and 31 per cent respectively. Overall, the answers suggest that households at least to some extent are prepared to handle new measures. Worth noting is also that consumer confidence remains at odds with the Housing Price Indicator with confidence having been on a steady downward path since the beginning of 2014.