Housing Price and Household Debt Interactions in Sweden
IMF Working Papers, December 28, 2015
Source details
- Canonical URL
- Housing Price and Household Debt Interactions in Sweden
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Bibliographic details
- Authors: Rima A Turk
- Published: December 28, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513586205.001
Summary and main findings
- Sweden is experiencing double-digit housing price gains alongside rising household debt.
- A three-equation model is used to examine interactions between housing prices and household debt.
- Short-run dynamics:
- Household borrowing impacts housing prices in the short-run.
- Long-run dynamics:
- The price of housing is the main driver of the secular trend in household debt over the long-run.
- Equilibrium and adjustment:
- Both housing prices and household debt are estimated to be moderately above their long-run equilibrium levels.
- The adjustment toward equilibrium is not found to be rapid.
- Drivers of recent housing price surge:
- Low interest rates have contributed to the recent surge in housing prices.
- Growth in incomes and financial assets play a larger role than low interest rates.
Policy experiments and recommendations
- Policy experiment findings:
- A gradual phasing out of mortgage interest deductibility is likely to have a manageable effect on housing prices and household debt.
- Implication for policymakers:
- Gradual removal of mortgage interest deductibility can be considered as a policy tool with limited disruptive impact on housing prices and household debt (as suggested by the model experiments).
Methodology and scope
- Analytical approach:
- Uses a three-equation model to capture interactions between housing prices, household borrowing, and other macro-financial variables.
- Subject coverage:
- Disposable income, Financial institutions, Financial services, Housing, Housing prices, Mortgages, National accounts, Prices, Real interest rates.
- Keywords reflected in the analysis:
- 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.