Housing Price and Household Debt Interactions in Sweden

December 28, 2015

Preview Citation

Format: Chicago

Rima A Turk. Housing Price and Household Debt Interactions in Sweden, (USA: International Monetary Fund, 2015) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Sweden is experiencing double-digit housing price gains alongside rising household debt. A common interpretation is that mortgage lending boosted by expansionary monetary policy is driving up house prices. But theory suggests the value of housing collateral is also important for household’s capacity to borrow. This paper examines the interactions between housing prices and household debt using a three-equation model, finding that household borrowing impacts housing prices in the short-run, but the price of housing is the main driver of the secular trend in household debt over the long-run. Both housing prices and household debt are estimated to be moderately above their long-run equilibrium levels, but the adjustment toward equilibrium is not found to be rapid. Whereas low interest rates have contributed to the recent surge in housing prices, growth in incomes and financial assets play a larger role. Policy experiments suggest that a gradual phasing out of mortgage interest deductibility is likely to have a manageable effect on housing prices and household debt.

Subject: Disposable income, Financial institutions, Financial services, Housing, Housing prices, Mortgages, National accounts, Prices, Real interest rates

Keywords: Apartment price rise, Collateral, Consumption fluctuation, Debt-to housing assets, Disposable income, Error correction term, Europe, Global, House price equation, House price gain, Household debt, Housing, Housing market, Housing price adjustments, Housing price deceleration, Housing price deviation, Housing price equation, Housing price growth, Housing price trend, Housing prices, Housing stock, Housing supply, Model predictability, Mortgage credit, Mortgages, Nominal interest rate, Real interest rates, Sweden, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/276
Stock No:

WPIEA2015276
ISBN:

9781513586205
ISSN:

1018-5941

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