If you buy today, you will always be able to sell at a better price tomorrow. Where the housing market is concerned, however, there is reason to question whether a bubble is possible at all. This is because most people do not purchase a home primarily as an investment but rather as a place to live. Consequently, a house buyer neither thinks nor behaves as an investor speculating on a quick and persistent rise in prices. There can hardly be many people who buy a home solely because they expect to gain financially through a rise in house prices! So assuming that speculation on future price increases doesn't exist, a bubble should quite simply not be able to occur. Some of you might now be thinking that this is just a convenient academic approach to the issue. After all, we have witnessed rapid price increases and even faster declines in the housing market, for example for tenant-owned apartments in metropolitan areas during the crisis at the beginning of the 1990s. In principle, I would be prepared to agree, if it proved impossible to explain the price rises with fundamental factors. In order to see if there are fundamental factors that could explain the recent price increases, it makes sense to look at the driving forces that could have been important for house prices, i.e. interest rates, primarily the post-tax real interest rate, household disposable income, the supply of housing and the demand that results from people moving to metropolitan areas in particular.
Speculation in construction was also less prevalent during the upswing at the end of the 1990s than during the rise in activity a decade earlier. Production of property has been relatively low, and projects have had pre-contracted tenants to a greater extent. In addition, the property crisis at the beginning of the 1990s was affected significantly by the structural changes that occurred during the period. The deregulation of the credit market together with the changes in economic policy required substantial adjustments in the market. So the present situation is not a cause for concern in the same way as the situation at the beginning of the 1990s. Some thoughts on the future The fact that the situation is not a source of concern does not mean that I am predicting a significant recovery in property prices. An increase in economic activity will of course stimulate demand, which sooner or later will apply upward pressure on prices. But at the same time I can see several factors which could restrain a rise in property prices, especially with regard to office premises. BIS Review 38/2003  3  Firstly, there is a risk that demand for office premises will be weaker than the general level of demand in the economy. From the mid 1990s, there was a gradual improvement in economic activity in Sweden, which resulted in higher employment in general, but particularly within office-intensive businesses such as IT and telecommunications.