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