Bloomberg: Swedish loan crash could be worse than the 90s crisis

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Published 22 November 2022 at 11.53

Economy. During the mid-1990s, condominiums in Stockholm's inner city were free – it was enough to undertake to pay the monthly fees to the struggling associations. Now Sweden is in the biggest mortgage­crash since then – and this time it could be even worse, writes Bloomberg.

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Sweden borrows

  • Interest rate increase can stay at 75 points – despite inflation
  • Swedish willingness to borrow crashes
  • The forecast for Sweden: The stock market crashes and the krona becomes the new junk currency
  • Many homes now selling for asking price
  • Half a million Swedes may be forced to leave their homes

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Sweden's housing prices have down 14 percent so far this year, according to Bloomberg. For seven months in a row, prices have fallen, while households are pressured by higher living costs and interest rates.

During October, the price drop accelerated to a speed not seen since the Swedish crisis of the 1990s, according to Bloomberg figures. At the time, the Swedish currency was in a state of flux and the Riksbank was forced to raise interest rates to 500 percent, which triggered a banking crisis when the real estate and mortgage sector suffered large credit losses.

Housing rights in Stockholm were transferred in the mid-1990s without effort as a result of the crisis. Taking over a condominium was still not free, as apartments that were handed over in this way were usually part of distressed associations with monthly fees of over SEK 2,000.

But the same apartments that were handed over for free 25 years ago are today worth millions, thanks to large interest rate cuts, interest deductions and several other benefits and deductions aimed at those who live in them.

Now Bloomberg notes that Valueguard's index HOX Sweden shows a price drop of 3 percent in October alone – which means that the party is most certainly over.

Sweden thus lags behind other developed economies in terms of the speed of the house price drop, writes Bloomberg. At the same time, the price drop in the developed economies has probably not really started yet, according to the news agency. The increasing inflation and the Riksbank's interest rate hikes are the biggest explanation why Sweden still pulls back.

According to the news agency, Sweden is also more vulnerable this time than during the 1990s crisis, because many younger home buyers have simply never experienced any price corrections within housing and therefore do not believe that such can occur. The leverage in the country is also significantly higher, which paves the way for an even worse crash this time.