The rate of increase in both household borrowing and house prices is lower now than it was last spring5, while forward-looking indicators such as SEB’s housing indicator and SBAB’s estate agents survey point towards lower rates of increase in the future. However, the statistical base is still fairly uncertain and it is too early to talk of a break in trend. Our experiences and international experiences show that it is difficult, if not very difficult, to make accurate forecasts of housing prices. However, it is clear that the current development, with increases of a good 10 per cent a year, cannot be regarded as sustainable in the long term. On the other hand, I do not believe that a fall in house prices on a broader scale is a particularly likely scenario, although this could happen here and there in certain regions. The most probable scenario is that house prices will continue to rise, albeit at a slower rate than they have done in recent years. Are there any risks with this development? As household debts have increased, the question has been raised as to whether the household sector is borrowing too heavily and what the effects would be on the banks’ loan losses if the macro economy were to develop unfavourably. Given that the Swedish household sector’s total debts currently amount to almost 140 per cent of disposable incomes, which is a few percentage points higher than immediately prior to the bank crisis, this is a reasonable question (Figure 5).
The Riksbank has collected data on thousands of individual households’ finances from Statistics Sweden for several years now. These statistics show that the households with the largest debts also have the highest incomes and the largest wealth. We have also examined what would happen to households’ ability to pay if unemployment or interest rates were to rise. The overall assessment is that households at present cannot cause loan losses to such an extent that the stability of the banking system would be threatened. However, even if the household sector’s ability to pay on the whole is good, there is of course a risk that individual households will borrow too much and may experience payment problems. With regard to financial stability, I see no serious risks in the growing household indebtedness and rising property prices. Are there any risks with regard to the inflation target? This question is slightly more difficult to answer. How developments in the asset markets, such as the housing market, will affect monetary policy for a central bank with an inflation target is a subject debated all over the world by academics and economic decision-makers. The problem can be formulated roughly as follows: The increases we have seen in household indebtedness are not sustainable in the long term; household debts cannot grow twice as fast as incomes over long periods of time.