We have previously flagged Swedish property as both a precariously overvalued asset and a risk to systemic stability given the high degree of household leverage. The scale and intensity of the Swedish property bubble is reflected in the two charts below. In real terms house prices have advanced by 40% in just five years, near the top of the pile among markets covered by the BIS data set. In addition, household debt stands at 186% of disposable income and is among the highest for an OECD state.
With that in mind, the recent drawdown in house prices is a warning sign for the broader economy. Given that Swedish data is relatively patchy and volatile, we have compared two separate house price series on a 3m rolling annualised basis to gauge the direction of prices: one from Statistics Sweden and the other compiled by Nasdaq. In both cases, house-price growth has slowed sharply and is now falling on a 12m basis. Additionally, our leading indicators for Sweden are turning lower (last chart), primarily on slowing M1 growth and yield-curve flattening.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception