Hacker News Reader

Comment by alkonaut | Hacker News Reader

There are tons of things inflating house prices. The most important for Sweden are

- Deduction of interest expenses from income tax.

- Too long mortgages (100 years or more) means nominal prices are high which add to the risk

- Historically big mortgages (90, 100 or even 110% of the cost could be financed - yes negativev down payments existed in the early 2000's).

- Rent control of almost all flats, meaning no one will build places to rent, only to buy.

- Extremely low interest rates as the central bank refuses to look at housing costs and interest rates when aiming for the inflation target.

This is the recipe for disaster. Now, it's not ALL doom and gloom, a lot has actually improved. Down payments have been 15-25% for some time now, mortgages are no longer infinite, and banks are using max-multiple-of-household-income caps (typically 4-5x) to limit lending. I think the situation now is a bit brighter than it would have been if we had been hit by a big correction in 2008 (which we were not). Many would welcome a controlled price correction (say 10-15%), and it IS expected since all the above changes have yet NOT changed the prices downward, even though the pool of prospective buyers gets smaller and smaller the more restrictive lenders are. It would be very welcome to see the correction now that both domestic and global economy is decent, interest rates are low etc.

View on HN

Also to add to that, an extreme number of new people immigrating to Sweden, especially under 2014-2016 [1] (which is my personal belief that is the leading cause to the biggest increases in prices). Many municipalities also letting up to 25% of these new people jump ahead the queues leaving Swedes to be even more forced to buy an apartment instead of renting [2].

Also in Sweden for apartments, you don't own it. Most apartments for sale is so called "Bostadsrätter" which means you own a percentage of the association that owns the apartment building(s). If the association/organization has a bad economy and can't pay the debt they could be forced to sell the entire apartment building(s) and you'd loose your apartment while still having a loan to the bank.

Of course you would get that % of the profit, but since it selling in a time of crisis, that would mean you would most likely get significantly less than you otherwise would do.

It doesn't even matter if you have a good economy, the association must have it as well. Lots of those associations or organizations have a really shitty economy and are sensitive to market changes. Especially in Gothenburg and Stockholm.

[1] https://www.migrationsverket.se/images/18.5bc6881815e14db675...

[2] http://sverigesradio.se/sida/artikel.aspx?programid=98&artik...

EDIT: If you downvote / disagree, please explain why? What I stated is pure fact a with a touch of stated opinion which is backed by the numbers.

EDIT 2: I've added sources for the stuff regarding to immigration.

Increase in immigration absolutely increases the demand for housing, but it's often not enough to increase the housing prices alone. Look at what happened in the early 90s during the Yugoslav Wars, Sweden took in more refugees than ever before in history yet the housing prices went down and threw the country into economic recession because of all the investments into real estate.

The financial regulations (or lack thereof) are far more responsible. They're present in all of Sweden's housing crises, this one included. It's the same when you look internationally.

I didn't imply that is was increasing the housing prices alone. If you read it again, I even start my sentence with "Also to add to that..".

> Also in Sweden for apartments, you don't own it. Most apartments for sale is so called "Bostadsrätter" which means you own a percentage of the association that owns the apartment building(s). If the association/organization has a bad economy and can't pay the debt they could be forced to sell the entire apartment building(s) and you'd loose your apartment while still having a loan to the bank.

In the US we call these co-ops and they are mostly an NYC phenomenon. Fun fact, some co-ops don't own the land they sit on, they rent it. And those rents get renegotiated every 30 years, potentially making a bunch of co-op owners suddenly unable to afford their monthly maintenance payments.

Some associations in Sweden does not own the land either (renting from the city) and that rent was increased just some time ago.

The Swedish system sounds closer to a strata system https://en.wikipedia.org/wiki/Strata_title

It's not actually. Unlike strata, in a Swedish "Brf" you don't actually hold title to any real estate.

As the GP says, you own a share in a co-op that itself owns the real estate, and that gives you the right to use the apartment that corresponds to your share.

Something similar to strata title has been discussed for many years in Sweden: ägarlägenheter. I don't know whether anything has ever come of it, however.

It's a shitty system, thats why we also now have "Äganderätter" which basically means "owned rights" which means you cannot be forced to sell.

Unfortunately, not many buildings have that.

Oh really? Where can I get that %25 get ahead in the queue thing? I am an immigrant moved in 2014, and I had to buy an apartment. Because of the freaking long queues. I have never heard of that %25 thing.

Not the mention that residents register their kids at very early age to these rental queues, giving them a way ahead in these queues.

I upvoted. I guess it's the first few words that suggest a racist / popularist post, but it's ontopic IMHO.

You point to an influx of people in the age range that usually rents an apartment. Such local equilibria are quite instable. It only takes a few hundred excess renters to destabilize a local (regulated) market for housing. That leads to crowding out where those that usually would rent, but can afford to buy will buy. A few more buyers will lead to the a dysequilibrium in the next market.

One thing - you expect upward pressure on prices, with more people competing for the same number of houses. The OP is about falling prices.

Well, if you are increasing the population a lot, all of those people are going to need somewhere to live. It isn't really hard to figure that out but most people don't seem to make that connection.

Don't understand how it could even be remotely racist or popular. The statistics of housing prices correlates very well with increases in immigration. Of course, correlation does not imply causation but in this case I'm personally pretty convinced it is the main causation of the extreme increases.

Regarding the falling prices, yes, I believe they were about to fall even before the massive influx of new people (because of all the other things mentioned) but were artificially held up a couple of extra years due to new people.

In 92 there was a five times jump in asylum applications from the previous year (to 69 000 people), can you guess what inflation adjusted house prices index did at that time, and some time on?

It takes great effort to see a correlation between yearly applications (between 2000 and 2008 an average of 25 k persons varying with at most 30%, 7 years below that average and 3 above) and house price index (steadily up 62 % from 2000 to 2007, never failing to increase from one year to another).

https://www.ekonomifakta.se/Fakta/Ekonomi/Hushallens-ekonomi...

https://www.migrationsverket.se/download/18.585fa5be158ee6bf...

Do you have any data on the supply of housing for the corresponding time periods and perhaps the mix of rental v ownership?

So, could you explain why the housing prices fell in the 90s when we took in more refugees than ever before? And why they rose considerably when immigration slowed down in the mid 2000s?

Because, for some reason you're convinced immigration is the main cause of rising housing prices and that the two clearly correlates, even though you can only back that up with stats that are about a decade old, any older than that and the correlation disappears. Maybe I'm missing something?

I don't really have any data from the 90s and I wasn't very old back then so I cannot really say anything about it.

And stop putting words into my mouth. I wrote that I believe immigration is the main cause of the most extreme increases not the main cause of rising housing prices in general.

The difference is that the number of people Sweden has recieved is so much larger 2013-2016 so basically every system we had failed and all municipalities was forced to buy apartments.

If you have stable immigration that are predictable it's easy to plan ahead and adjust the society for it but when it comes like 160k people in one year to such a small country as Sweden everything fails. Of course this will have economic effects such as in the housing market.

Fair enough, I’ll stop putting words in your mouth.

SiemperVernes supplied stats that showed that the correlation goes from weak to non-existant when you look at the past three decades, despite the fact that the early 90s was record years of immigration. You said the correlation was clear and that you think it’s the main cause of rising housing prices, why do you think that? Is it only because of news stories that the local governments had a hard time finding places to rent out? You don’t base it on data?

I would gladly base my thoughts on data but unfortunately when it comes to immigration the government doesn't really publish/store any data of any negative effects immigration could have.

I base my thoughts on the data that is available (which isn't much) and I still think it's different from the 90s because of the much higher number of people that came to Sweden in the last years. Basically no systems worked as you surely know and the government had to abort the whole situation because it became unreasonable even for them. And to my knowledge, Sweden didn't let immigrants jump queues nor buy apartments for them and their wives in the 90s.

For example regarding the lack of data, I am sure they know how many apartments they bought for immigrants but in order for me as a citizen to get that information I would probably have to request it from every single municipality which quickly becomes unreasonable.

Just think what you would have to do in order to base the thoughts on data:

I would have to request data from every municipality in the country regarding different factors that the immigration could have an effect on. Then I would probably take that data and compile it with other data that is basically impossible to get hold of and then have to compare it with the same data from the 90s. That is of course if every municipality even answers your request (they do not always do that, even if they must) and if they actually keep the records of the data. As with any topic that involves immigration in Sweden, statistics are simply not very often even recorded or stored.

But there is data of how many refugees entered Sweden in the 90s, it was roughly a hundred thousand a year then just like in the recent years. Did you read any of the links SiemperVernes linked to? You also say that you don't believe refugees could cut the line to public housing, did you check at all to find out if that was the case? Did you also cross check with SCB to find out how many new houses were built, since that statistics stretches well past the Million program more than 50 years ago? It even stretches back before WWII.

https://www.scb.se/hitta-statistik/statistik-efter-amne/boen...

Or is your personal belief based on your gut feeling?

And, when you say that "they correlate well", what time period are you then looking at? And what data? Because immigration decreased in the mid 2000s while the housing prices increased. No offense, but it looks like your analytical method is "there's lots of newspaper articles about refugees these days, and lots of newspaper articles about rising housing prices, one of them must the main cause of the other". I might as well say "there's lots of articles about smartphones lately while the housing prices are increasing, maybe smartphones lets us live alone more effectively meaning that we take up more space when everyone gets their own apartment instead of a room mate".

Even if you had this specific information, it wouldn't answer your question. It would mostly serve to re-enforce the beliefs you came in with, because you also need to look for other factors which might explain the housing increases.

For example, in another part of this thread I quoted a news article as saying "Prices have also been pushed up since a law change in 2013, allowing private individuals to charge tenants based on their mortgage costs rather than comparable rent prices in the neighbourhood." How much of an effect has this had in the rents in 2014-2016?

You appear to be young person, so you personally are likely in the same housing market at the refugees. This can make it seem particularly dire for you as most of the new housing being built is for a more expensive part of the market.

So, why is the new housing built for a more expensive part of the market?

Another factor which is harder to plan for and which affects the housing market is internal migration. Just like in the US, smaller towns and cities in Sweden are depopulating as people move to the bigger ones, where there is a stronger economy.

Was that planned for, and how much of effect has that had on housing prices in the big cities?

Furthermore, as https://www.thelocal.se/20170205/swedens-urban-rural-divide-... points out, "It is primarily young people leaving". This is again the population which is in the same housing market as most of the refugees.

Finally, here's a quote from an article from 2009 titled "Sweden risks facing severe labour shortages" / "Over the next ten years, the number of native-born Swedes of working age will decline by 100,000. Without more immigrants, we will be unable to sustain our welfare standards, writes Olle Wästberg, head of the Swedish Institute." https://www.thelocal.se/20091222/24004

> Almost all Swedish regions have set population targets that emphasise growth. The Greater Gothenburg area wants to have a population of 1.5 million in just ten years’ time. Stockholm wants to have 600,000 more inhabitants over the next 20 years.

Was enough housing built to meet the desired growth goals?

I'm kind of expecting to see a chain reaction happening next..

- Housing falls

- Investors sell

- Stock drops

- SEK value drops (We are here)

- Import prices goes up

- Goods prices goes up

- Less people are wiling to buy goods due to risk

- Wages go down

- People are let go

- Fewer people are willing to buy goods

- and so on..

Your chain breaks at "less people willing to buy goods due to risk".

SEK going down will push the costs of imports up. It will also make Swedish exports more competitive. Imports being more costly will cause Swedish consumers to substitute imported goods with local alternatives.

The net will be that wages will go up and unemployment will go down. This is good. But the price of goods will become dear to the Swedish consumer and this is bad. And there's a possibility of a wage/price spiral driving up inflation.

Good point!

> Well, if you are increasing the population a lot

But you aren't increasing the population "a lot", now are you?

You linked to a graph that shows around 350,000 asylum seekers over 5 years. What percentage of Sweden's population is that?

It's over 3.5% of the total population, which is equivalent to the U.S. adding about a million people. Also note that they're going to be concentrated into relatively few urban areas, instead of being spread out over the entire country.

Uhh, would be US adding 10 million, not one million.

So, 3.5% over 5 years, is about 0.7% per year. And that's the main cause of the housing problem in Sweden? I'm very skeptical.

> note that they're going to be concentrated into relatively few urban areas

Well surely that's a more likely cause, right? Not the actual number, but how they're being distributed.

Bigger than the population of the third largest city in Sweden https://en.wikipedia.org/wiki/Malm%C3%B6

It has not been that much of a price change and while it will of course affect some it has not been the driver. It is not THAT difficult to get an apartment in the shitty areas where immigrants want to live but those who buy apartments won't buy in those areas anyway.

"which is my personal belief that is the leading cause to the biggest increases in prices"

The Sweden housing crises was decades in the making. https://www.thelocal.se/20170828/the-story-of-swedens-housin... .

Already the prices were high and housing scarce in 2010. https://www.thelocal.se/20100928/29292 , dateline 28 September 2010, quoting the local paper "Housing crisis worse than ever!"

http://www.bbc.com/capital/story/20160517-this-is-one-city-w... from 2016 points out "But amid strict building regulations and a lack of investment over a number of decades, successive governments have failed to build enough homes for its long-term residents, let alone the latest arrivals. ... Prices have also been pushed up since a law change in 2013, allowing private individuals to charge tenants based on their mortgage costs rather than comparable rent prices in the neighbourhood."

That 2013 change is just before your 2014-2016 time frame. Perhaps it had a bigger effect on the market than you think?

Yes, Sweden accepted a lot of refugees in the last few years. But as the first link points out, they cannot "afford the kind of houses that were being built in the years following the crunch." It seems more that they are priced out of the market more than causing the market prices to rise. (There are certainly secondary effects.)

I tried to find something in the Swedish press. I think this is relevant: http://www.gp.se/nyheter/g%C3%B6teborg/s%C3%A5-l%C3%A4nge-m%... from 2014, so before the timeframe you describe. If I read it correctly (thanks Google Translate), in Gothenburg there were 20,000 fewer homes, relative to the size of the population, than there was in the 1970s. There were 210,000 people registered in the housing queue, and the time an applicant needed to queue was 950 days.

One of the people being interviewed also argues that "there is big gap between what is being built and what those who need a home can afford to pay. A survey conducted recently by Sifo on behalf of the Tenant Association shows that 70 percent of them are considered to be able to pay a maximum of SEK 5,000 for a one. A newly built one in Kvillestaden costs over 6 500 kronor."

This seems to confirm the arguments presented in the English language press, that is, there are large-scale systemic factors that lead to the current housing crisis, and it cannot easily be explained by the large number of refugees.

> Too long mortgages (100 years or more) means nominal prices are high which add to the risk

That is absolutely bananas. Almost like a Chinese-style 99 year lease. Your kids might be dead by the time it's paid off, you'll never own it.

Edit: apparently the AVERAGE mortgage term is 140 years! Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

As an American I am absolutely shocked anybody thought that was a good idea. If an average person making $50k/year finds it affordable to pay $1200/month on housing, they're just going to shop for a house that will yield that desired monthly payment. When interest rates are low, how is this not a recipe for runaway housing costs?

What's worse is that this is actually a huge subsidy for landlords, unless their mortgage terms are limited to be much shorter. A landlord can afford the downpayment to finance many homes at low interest rates, whereas a poorer person may be able to make the payments on such a mortgage, but can't save up enough to afford a down payment.

"shocked"; a bit of sarcasm perhaps?

A 30 year loan is not much different really. Too long. It was rare in the US before various government subsidies and encouragements. First, Fannie Mae (1938), securitizing FHA backed home mortgages. Next, Freddie Mac (1970), securitizing home loans not backed by the US government.

Shocked because it seems obvious to me that this would have undesirable effects down the road. It also funnels even more money into banks because the net effect is that homeowners are essentially renting from banks for most of their lives until they get a significant windfall.

In the US, we saw what happens when you make getting a mortgage "easy". People bought more house than they could afford and got screwed.

In the UK, around a fifth of mortgages are interest-only, which I guess is effectively an infinite-term mortgage. In comparison, at least you're paying some part of the capital back on a 100 year mortgage. Of course, both are storing up trouble for the future.

https://www.ft.com/content/4e0377e6-6ad4-11e7-bfeb-33fe0c5b7...

I would agree that my interest only mortgage is storing up trouble for my future. However given I bought my 1st house in 1996 with no deposit, the reality is that interest only has worked well given that I have leveraged the housing market over 20 years and have now have a mortgage that is around 40% of the value of the house and is probably enough to move somewhere significantly less expensive and retire.

However I recognise that my gain is also a problem for my teenage daughter who will struggle immensely to get on the housing ladder. In the UK, it really does not help that housing is considered an investment opportunity. I have a feeling rent control is the only way we will ever get to the point where we remove this 'investment' opportunity.

More interestingly, it's within landlord's interest to work with developers to ensure whole developments are primarily bought up by landlords to maintain the value of housing stock.

> I have a feeling rent control is the only way we will ever get to the point where we remove this 'investment' opportunity.

And also remove the opportunity to live in the city. Rent-control is one of those policies that the economic community has consensus that its one of the worst things you can do.

"In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing."

Interest-only mortgages can work well - but only if you know what you are doing. Historically at least, the biggest issue with these kinds of mortgages is that most people simply don't.

Does the FT article give any details of how that fifth is broken down? I suspect they'd be predominantly buy-to-let; my understanding is that there are significant barriers to getting an interest-only residential mortgage.

If you're getting an interest only mortgage, at least you know what you're getting into. They're great for investment properties and other investments, not so much for your main residence.

Then again, there is the problem of refinancing when the end date comes due, which is probably why you have 100+ years mortgages in Sweden.

> Just recently the Swedish government limited the maximum mortgage term to 105 years. That is some absolutely stupid policy.

It is a bad situation. But on the other hand you can't just change the max mortgage to 30 years either, or remove the interest tax deduction over night, as that would immediately create the problem you were trying to avoid to begin with (an unstable housing market).

I think what they are doing to mortgage lengths is entirely sensible now: they are increasing the required down payments (effectively 25% now) and then requiring a higher pace of repayment initially. That's when it really matters to stability. E.g. if people pay off 3%/year for the first 10 years of their mortgage, it doesn't really matter whether they have a 30, 40 or 100 year mortgage. They will have paid it down to around half the valuation which lowers the risk.

> Your kids might be dead by the time it's paid off, you'll never own it.

Exactly right. I don't know anyone who buys with the intention to own.

Effectively you rent it from the bank. I don't mind, I mean I don't mind renting from the bank. I pay off my mortgage (2% per year, so 50 years) but only as long as its reasonably high, in order to lower interest rate costs and reduce the risk of being under water.

I have no interest in paying it off completely, so I'll stop paying 2% per year when the mortgage is down to e.g. 40% of the value. Obviosly as a banks have zero interest in your customers loans shrinking, it's lost revenue!

The big downside of very long mortgages is that it brings up nominal prices, and thus the volatility

Wow. And I've seen people here (justifiably) roll their eyes over 6 and 7 year auto loans.

A 140 year mortgage can't possibly be appreciably different from renting.

> A 140 year mortgage can't possibly be appreciably different from renting.

The fact that as a homeowner ("owner") you can deduct interest rates, means that by "renting from the bank" you have a 30% rebate compared to renting from a landlord, and obviously you have no landlord taking a cut on top of that. So apart from the risk of depreciation, people seem to have little interest in owning their homes outright. So people pay off quickly in the beginning to get some margin on their valuation, but after that when the loan is e.g. 50% of the valuation, people might prefer buying a car to paying off $10k per year on their home. And it's probably better to have a mortgage fixed at 50% forever with 2-3% interest rate, and avoid the car loan with 5% interest.

The landlord is also getting the “30% rebate” by claiming interest as a business expense to offset rent revenue.

Yes, but landlords also pay taxes on profits. As a homeowner, you won't pay tax on the difference between rental cost and your mortgage interest payment.

In some countries you get taxed on the imputed rent (the amount of rent that you would be paying gets added to your taxable income).

https://economix.blogs.nytimes.com/2013/09/03/taxing-homeown...

In the US home sale profits are taxed as capital gains with an exemption based on marital status. It's hard to compare, though, since homeowners are not permitted to write off routine maintenance as would a landlord.

Would be interesting to simplify tax codes and handle homeowners as both renter-landlord on their own home.

In Sweden, the deduction is more limited; a deduction of 30 % of interest up until 100 000 SEK, and 21 % over that amount.

As nominal marginal tax rates are somewhere in the 40-50 % range, this typically means <15 % actual reduction in taxes.

Makes sense. Thanks

A car decreases in value each year, houses on average over time increases in value. Rent also increases but the loan don't increase so only changes in the interest will change how much you have to pay. (Not saying 140 year mortgage is a good thing, plan to pay down mine in 10-15 years if I don't move, but still think it could be better than renting)

You're right--auto values don't increase the way houses typically do, so it's not the best comparison.

100 year mortgages? Why is this? Because prices are too high for average folks to purchase otherwise, or because people prefer "owning" (renting from a bank) instead of renting from a landlord?

> Because prices are too high for average folks to purchase otherwise

Yes. In a sell to the highest bidder, you aren't going to win with the amount you can borrow over 30 years, if the people bidding against you borrow on 50 or 100 years. Simple as that. So without any caps, people will request long mortgages simply to be able to win these auctions. Should be noted that this is now developing backwars again, and "peak insanity" was early 2000's. What we are seeing now is to a large extent the effect of common sense on the prices. The attempts to stop the insanity over the last 5-10 years (e.g. down payments went from 5, to 10, to 15 to 20 % etc) unfortunately coincided with negative interest rates, meaning people could still push prices up. Now we are finally seeing the effect.

> or because people prefer "owning" (renting from a bank) instead of renting from a landlord?

Yes, there is effectively zero renting of 1-family homes. If you rent, it's a flat. And there are very few flats to rent. A LOT of the people having to buy these expensive homes would rather rent, but there is nothing to rent.

Makes sense. So, if you don't mind me asking, how much are people paying for an average home? How much is an average salary?

Varies, of course. Average house is basically $100 to $350k but the average in Stockholm is probably around $1M depending on what areas you count. Not sure what the average salary is, but loan caps now are ~5 times the household (gross) salary. which sets the equation somewhat.

So a couple buying a stockholm home at $1M today (which isnt an uncommon price) would be borrowing say 75-80% of that, so making at least $1Mx0.8/5 as a couple or $1Mx0.8/5/2 each, or $80k/year. That's a good salary, but more commonly this couple would be selling something they made a nice profit on, and borrow less, lowering the income requirement.

This equation could be cut in 2 for a more average (4MSEK house, not 8MSEK) city or cut in 3 for more rural areas. Salaries fall off slower than house prices do, so rural areas spend less on housing than city dwellers.

I'm assuming that $80k/year is gross? Given Sweden has high income taxes, borrowing say $800k on a $40k net salary (for a house!) seems like extremely bad financial management.

Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).

Yes gross. $80k gross is around $53k net (depends on where you live but roughly). Now, remember that reason we are in this mess is because interest rates are so low. We still have pretty low living costs. Our $1M house at 80% is pretty cheap, due to low interest rates. Now, everyone knows interest rates can and will be higher in the future, but people have to buy on the current market regardless (And everyone seems to accept to have less spending money when interest rates double or triple).

The calculation now for our couple with $100k household net income isn't all that bad. The monthly "rent" for the house is between $2k and $3k of which $1.2k is down payment ($24k-36k year). Double the interest rates from 2% to 4% and it's $3k to $4k/month. I think spending over 50% your net income on living costs is proabably a limit to look out for - and that will certainly happen to these people should interest rates go north of 5% or there about. We also need to remember that in Sweden people generally don't save up for a rainy day. I'm not saving for retirement, kids edication, risk of being ill etc. So in a nanny state the equation is slightly different than in say the US.

> Which sane person who is good with money does that?

It doesn't matter so long as it is at least one person in the auction for each house does it. If there are no homes to rent and nothing is built, there will be competition for the existing homes on the market.

> not unrealistically, an underwater house during your lifetime

This is definitely a risk. And banks are now lending less and less. With a 25% down payment the bank will know the hose can take a 25% correction and still be over water. But the scary bit is of course that if there is a 20% correction, no one can move, and no one will consume anything for a very long time, which will lead to pretty significant economic fallout.

"And everyone seems to accept to have less spending money when interest rates double or triple" another angle to look at this phrase would be "people don't see other option". Another option could be renting, but then there are many downsides - you are wasting rent money on temporary living instead of paying for your own house. Another downside at least in my country is difficulty to live normal life in rented apartment - usually there are restrictions (from landlord) to not own a pet, or they refuse to rent apartment for young family with babies. So people are kind of forced to purchase apartments, and ususally the need is to live in city where employment is highest, otherwise you will be unemployed or your expenses on commute will be the same as difference in loan payment which you saved with cheaper purchase.

I am waiting (and renting) for "good time" to purchase apartment, and it's more than five years like that and I don't see any signs for hope anytime soon, and you realize that time goes by and you are getting older and your timeframe for which you can take loan is shrinking anyway, so situation becomes a bit desperate I would say.

So decision making with real estate is not only rational but emotional too.

You're talking about these interest rates as though they can just move around - are these adjustable-rate mortgages? In the US, the standard mortgage has a fixed rate. So people with those mortgages would benefit from increased interest rates and/or inflation in the wider economy.

Adjustable at a month's notice in Norway. You're free to refinance or change banks whenever you want. But if some crisis forces your bank to increase rates quickly (e.g. due to increased costs for the bonds that support their loan portfolio), you can bet every other bank will be forced to increase rates too.

This happened in 2008, and a disaster was averted only because the government bailed out the banks by allowing them to trade their now-bad commercial bonds for government bonds. It turned out to be a good deal for the government, because commercial bond rates came back down quickly. (No guarantee that this would have happened, just luck).

Yes, many homeowners have all or a large part of the mortgage at a rate adjusted several times per year. Right now these variable rates are around 2%. So a lot of people will see their interest rate expenses double if (when) rates normalize at say 4%.

I have my mortgage split between 5year fixed, 2 year fixed and the 3month rate, in order to limit my exposure to variations somewhat.

The general consensus is long fixed mortgages are a poor economic choice for those that have the economic margins to be on the variable rates, since the banks margins are so much higher.

Of course, most people who borrow 80+% can't _really_ afford the risk of an adjustable-rate mortgage, but they think they can because rates are always low and will never go back up ;)

Banks do stress tests at 7% interest rate which was a reasonable "high" interest rate 10 years ago, but now it seems almost unimaginably high.

So I think people (and banks) have calculated with higher rates, but there is always illness, divorce, unemployment...

Lots and lots of people would have a pretty miserable economy if interest rates go over 6% (i.e triple) - spending most of their money on mortgages.

So this creates the risk that rates will be self sustaining at a low level because even a 2% increase will reduce consumption and halt inflation pretty quickly.

Rates in Sweden are adjustable. Recipe for a future desaster and huge pressure on the Central Bank should they move up their rate...

As a French living in Sweden,this system seems sooo fucked up but everybody seems to think it's normal.

In most places it's rational[1] to max out the loan. It's the cheapest kind of financing you can get privately, it makes more sense to put your money in other vehicles than mortgage payments. Of course you may think there's intrinsic value in being mortgage free.

[1] in the econ/ferengi "maximize profit" meaning

Seems like renting from instead of renting from a landlord is a good way to get around rent controls.

> Too long mortgages (100 years or more)

This is basically a mortgage and reverse mortgage in one package, isn't it?

> This is basically a mortgage and reverse mortgage

We don't have a specific term for "mortgages" as meaning home loans - we treat them as any bank loan. I hadn't heard the term "reverse mortgage" before, so had to look it up. It's not quite that (interests are always paid).

Mortgage is just sort for mortgage loan = hypotekslån.

Reply on news.ycombinator.com