Our calculations also indicate that households with debts on average have a relatively good safety margin for interest rate rises and reductions in income. We therefore do not at present envisage any major problems for the household sector as a whole, even if interest rates rise significantly. However, this does not mean that problems will not arise for individual households in the case of higher interest rates. It is important that borrowers include rising interest rate expenditure in their calculations and carefully consider what level of indebtedness they can manage when interest rates sooner or later begin to rise. For this reason, we have emphasised in connection with our monetary policy decisions over the past six months that interest rates are at present low in a historical perspective and will need to be raised in the long run. With regard to house prices, the calculations we have made so far do not indicate that prices for housing in the country as a whole are substantially unbalanced. The developments can be explained fairly well by factors such as disposable income, living costs, construction costs and the fact that there is relatively little new building, despite strong demand. Supply is expected to increase at a slightly slower rate than demand over the coming years. My assessment is that at present no imbalances have been built up that could risk leading to a sharp fall in prices further ahead. However, the rapid increase in house prices and indebtedness occurring now is something we shall monitor closely.
Household wealth plays an important role in the Riksbank’s assessment of how private consumption will develop. Wealth affects households’ consumption in several ways. To simplify, one can say there are two reasons why an increase in wealth, for instance in the form of an increase in the value of one’s own home, can be expected to lead to increased consumption. Firstly, the larger the wealth an individual has, the more he or she can consume during his or her lifetime. This is a traditional wealth effect. Secondly, the size of the wealth can affect the possibilities to obtain loans. This is usually called the balance sheet effect. The larger the collateral a household can offer for its loans, the greater the possibilities to borrow and thereby to consume. When the value of the property owned by the household increases, this also provides a possibility to take out further loans on the property, for instance, to extend or renovate and further increase the value of the property, or to consume other goods. Another effect is that a higher valuation provides the possibility to renew last mortgage loans as first mortgage loans and thereby reduce the interest costs for the loans. There is also empirical support for a positive correlation between wealth and consumption. Wealth also has significance for how strongly households are affected by interest changes.