Published 5 February 2023 at 12.17
Economy. Now Sweden is starting to get international attention again. This time it is about our gigantic banking sector and inflated housing market, which together with four similar countries – Canada, Australia, Norway and New Zealand – are singled out as the “CANNS countries” that could crash the world's financial system.
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The housing bubble
- Inflation adjusted housing prices fell 27 percent in Stockholm
- Residential property fees must be increased by 40 percent
- Nordea: Increase variable mortgage interest of 6 percent already this summer
- Desperate SBAB appeals to the Riksbank: "Don't raise too much" – now housing price crash is expected
- Villa owners in Stockholm lose 5,500 kroner a day to live
< /ul> Show all
When the 2008 financial crisis led to major price corrections in the world's housing markets, the Riksbank and the central banks of a small number of other countries announced that we do not intend to accept such a thing here.
The central banks stepped on the gas, lowered interest rates and increased lending. We came out of the crisis unscathed – but borrowed so much that we can now tolerate nothing but remaining non-existent interest rates, according to international experts.
Today interest rates are being raised worldwide and central bank managers and politicians are busy figuring out how they must “soften” their respective mortgaged middle classes without inflation making life impossible for those who are a little worse off.
It is not only in Sweden that many former workers have become rich from the gigantic amounts of money that have been pumped into the housing market by central banks in recent years. But in Sweden and a number of other countries – Norway, New Zealand, Canada and Australia – the situation is extreme.
An analysis index that the economist Ian Harnett has produced shows how Sweden and the other countries in the group, which he calls the CANNS countries, have gassed out of the last financial crisis by simply inflating their housing markets as soon as a correction was on the horizon .
If interest rates had to be raised quickly, these countries' housing markets could quickly collapse, as they would probably refuse to raise interest rates high enough to begin with.
When the rest of the world then raises its interest rates, the exchange rate for the CANNS countries' currencies deteriorates and inflation is driven up in the countries even if it were to fall in the rest of the world, which ultimately forces their central banks to raise interest rates more strongly than in other countries, which ultimately causes the housing bubbles of the CANNS countries to break completely.
Does the situation feel familiar?
Most people know enough about the weakening of the krona, and measured in some international trade measure such as dollars or gold, Swedish housing has already halved in price. Something that can also be seen in the rising Swedish inflation, as those who sell their home today get significantly less purchasing power for the kronor that are still paid after all.
But it's not just the better-off middle class in the most irresponsible economies that will suffer if this really crashes, warns Harnett. Instead, the CANNS countries' problems could threaten the entire financial system of the world. The reason is that our gigantic housing markets have in turn given rise to an equally gigantic banking market in each country.
“The combined weight of these countries' banks in the world's financial markets is four times greater than the countries' share of the world economy,” warned the London-based analyst firm Absolute Strategy Research (ASR) back in 2018.
According to ASR, investors underestimate how “damaging a group of countries accounting for just 3 percent of world GDP can be” for the international financial system.< /p>
Bloomberg editor John Authers writes in a column that CANNS home price inflation has been extreme in recent years, noting that no “soft landing” is likely possible here.
But in the USA and parts of Europe it looks better, given that a crisis in Sweden, Norway, Canada, Australia and New Zealand does not paralyze the financial markets completely.