Allow me to come back to that in a moment and just say here that even in the event of such a more general price fall we do not deem there to be any immediate risk of problems for financial stability. The reasons again are those I gave earlier, chiefly that households on the whole can afford their homes and that experience shows that the household sector seldom causes any significant problems for the banks. So the Riksbank does not view the developments in house prices and household debt as a danger to the stability of the payment system. House prices, demand and inflation As I indicated in the beginning, developments in house prices are important to monitor also, and perhaps even mainly, because they have potential implications for the Riksbank’s second objective – price stability. If house prices fall, households’ willingness to consume goods and services – their demand– declines. If prices drop at a measured rate over a long period it does not have to be a problem. If the price decline occurs rapidly there is reason for greater vigilance. How then do house prices affect the activity level in the economy? This can happen through various channels. One such channel – which I only intend to mention in passing – is housing construction. The higher house prices are, the more profitable it is to build them, all other things being equal.
Lars Nyberg: House price developments and monetary policy Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Evli Bank, Stockholm, 19 December 2005. *  *  *  Thank you for your invitation to Evli Bank. I intend to devote the bulk of my speech to a subject that has been under discussion for a fairly long time but that nevertheless has not become less topical or important, namely the developments in the housing market and the rise in household debt. These factors have potentially significant implications for both of the tasks assigned to the Riksbank – both the assignment of safeguarding financial stability and the monetary policy objective of price stability. That of course means that they also have consequences for the efforts to keep the real economy in good balance. Thereafter, I intend to say a few words about the current monetary policy situation and the decision that we took a few weeks ago to leave the repo rate unchanged. As you know, the Executive Board on that occasion – incidentally for the first time in over one and a half years – was not unanimous in its decision. Since I was one of those with a different opinion it may be appropriate for me to elaborate somewhat on my line of reasoning. I want to underline, however, that it was a question of subtle differences in our assessments which there is no reason to overdramatise.