According to some financial experts around the globe, the once hot property market in Sweden is cooling off considerably. The property market is getting so cold that Goldman Sachs, the multinational investment and financial services company, recently predicted that the cost of housing will fall 10%. If this does indeed happen, it will be the worst crash since the banking crisis of the 1990s.
The Banking Crisis in Sweden
Thanks to negative interest rates and Sweden’s strong economy, the country enjoyed a lucrative residential and commercial property market for many years. Currently, in the residential sector, property prices are 70% higher than they were during the peak of the banking crisis in the 1990s.
There were many reasons for that crisis including extensive deregulation and loose credit requirements. It all worked together to create the financial storm of the 90s. The winds of that storm caused real estate prices to sharply increase. At that time, six of the largest banks in the country accounted for 90% of the market. As the crisis unfolded, each bank lost massive amounts of loans.
The Swedish government stepped in to reorganize the banking system, which helped to protect creditors, but not the shareholders. One bank called Securum, was created for the sole purpose of taking over the riskier loans of two other banks. Eventually the original six large banks became four. Many financial experts applaud the Swedish government for their decisive actions, which not only helped to overcome the banking crisis, but also to revive the economy and improve the property market.
The Looming Property Market Crisis
After successfully weathering the storm in the 1990s, experts warn that another financial crisis in Sweden is just around the corner. Real estate prices are beginning to plummet and some say that the worst is yet to come.
Unlike last time, however, when the government recognized what was happening and knew what they had to do to fix it, nobody knows the reasons for the impending downward spiral of the property market. Some people are blaming restrictive regulations while others are pointing to increased interest rates at Riksbanken.
The increased interest rates are especially problematic for those who want to take out an unsecured mortgage loan, as it increases their debt-to-income ratio. When weighing in on whether or not they thought the property market crisis is going to be as bad as some fear, one bank says it’s still too early to tell and another believes that the housing market will soon stabilize.