Record low rates, scope for additional Riksbank easing, low supply of housing and an improving labour market are probably the main reasons behind the strong optimism, according to SEB’s experts.
The continued increase in the House Price Indicator highlights a growing policy dilemma in Sweden. While the Riksbank during the past 1.5 years has focused on inflation, cutting rates to a record low zero per cent in October, macro prudential policy has obviously not succeeded in dampening the housing market. Home price increases have picked up and Swedish households are accumulating debt at an accelerating pace.
In December, household lending rose by 6.1 per cent compared to the same period a year ago, the highest pace since August 2011, though, admittedly, still clearly below the levels prevailing before the global financial crisis. The political support for fiscal policy measures, such as limiting tax deductions of rate costs or raising real estate taxation, also appears to be limited.
Signs of a continued buoyant housing market should be a growing concern to the Riksbank. However, SEB’s experts do not expect this to stop the bank from easing policy further in order to halt the decline in inflationary expectations and to offset risks for appreciation of the Swedish krona from ECB monetary policy easing.