Letter From Sweden

Hey! It’s different here. It can’t be different everywhere. … (The commonality is free money.) -vreaa

holgs at vancouvercondo.info 30 Sept 2010 12:40am
“I sit in Gothenburg, Sweden, still waiting for the bubble here to pop. Nowhere outside of China can compete with Vancouver’s bubble, but it is pretty equivalent to Victoria, at least here in Gothenburg.
Stockholm and Vancouver are pretty similar though, with a 27% increase in condo prices in the past year in Stockholm since the “emergency” interest rates kicked in. I can’t find stats right now but I have heard anecdotes about people buying a small apartment (bostadsrätt) for 4000000:-, or about $610k.
I am Canadian and have been waiting for the global credit bubble to pop since 2004-2005, so a really, really long time. Now sitting here in Sweden where sales and prices still seem to be rising due to many factors, while the bubble finally seems to have popped in my homeland. Aaaaargh!
The problems here are many:
1.) SBAB is a huge government run bank here and is nationalized, and they offer variable rate loans at 1.5% or something ridiculous. (Don’t quote me on the percentage, but it’s really low, basically free, and all other banks need to compete with that)
2.) Nobody here amortizes their mortgages. It’s so passe to do that, why bother as long as house prices are rising?
3.) Prices have been rising here since the mid 90s, nobody in the younger generation even remembers what it was like to have falling prices. Just like Canada, the lessons of 2008 have been very quickly forgotten. The second graph linked here shows inflation adjusted prices over all of Sweden; notice the continual uptrend since 1995. Why would you believe in falling prices?
4.) Due to the EU, Sweden is forced to maintain its interest rates at equivalent rates to the rest of the union, and in this case (as the recession wasn’t as deep here), the rate was far too low to prevent a housing bubble from continuing its rise.)
I have never seen so many brand new Audi’s, BMW’s, and Mercedes’… Was it only two years ago we were all discussing smaller environmentally friendly cars, and how people would be using their cars for longer before buying new ones? I am positive that a majority of these cars are being bought with loans that are now affordable because the variable monthly cost of the house has dropped some 60% from 2 years ago. It is still possible to own here for almost the same amount as renting, but that is only due to the “emergency” interest rates, which you can only get on a VRM and could go back up from 1.5% to 2008’s “normal” 6% faster than most of these people realize, at which point their depreciating beemer will seem more like an anchor.
On a positive note, the rules are changing here on October 1. On that day, there is a maximum “ceiling” on each loan of 85%, so you need 15% down to buy. (As of today, you can buy with 0% down.) I have heard that there are ways around it (ie borrowing the first 15% from another bank at a higher interest rate) but in any case it may be enough of a push to finally kill this market and allow us to place a bid on a place without a bunch of no-savings kids to outbid us by 20%.
I thought it might be interesting for you all to know there is another westernized country in the world where the bubble is still going strong… I pray for it’s death staring October 1, 2010.”

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