Household debt in relation to disposable incomes is now at the same level as just before the banking crisis at the beginning of the 1990s, just over 120 per cent. The bulk of households’ loans have in various ways been secured on homes. A number of factors can help to explain this development. In the housing market the supply of new apartments has been low since 1993 (Figure 2). In the centres of the major Swedish cities, where prices have risen most, it is difficult to build homes at all. Meanwhile, demand has picked up as a result of robust growth in households’ incomes. Disposable incomes have risen by 35 per cent since 1995, measured in current prices. Moreover, migration to the big cities has boosted demand in the very areas where the supply is most limited. During the IT boom, the demand pressure in Stockholm was high, which was reflected in prices. When the equity market and particularly technology companies dropped in value, prices in Stockholm stagnated, but they continued to rise in Gothenburg and Malmö. In the credit market, falling interest rates have of course increased demand and made households more inclined to borrow. Households may also be borrowing more because they are less uncertain than before about how interest rates and inflation will develop. The future seems more predictable, which should increase the willingness to borrow at each given interest rate level. Since the mid-1990s we have gone from a period of high, fluctuating inflation to low and stable inflation.
The forecast for 2004-2006 is that of the National Board of Housing, Building and Planning . Household indebtedness Per cent 160  16  120  12  80  8  40  4  0 1980  0 1982  1984  1986  1988  1990  1992  Debt to income ratio (LHS)  1994  1996  1998  2000  2002  Post-tax interest ratio (RHS)  Sources: Statistics Sweden and the Riksbank  Households’ real and financial assets 45  5000 Real assets (Billion SEK, LHS) Financial assets (Billion SEK, LHS)  4000  40  Debt as percentage of total assets (RHS)  3000  35  2000  30  1000  25  20  0 1988  1990  1992  1997  1999  2001  2003  2004 kv2  Sources: Statistics Sweden and the Riksbank. BIS Review 67/2004  5  The major banks’ profits SEK billion, prices in 2004  Profit before loan losses  dec-04  0 dec-02  0 dec-00  30  dec-98  30  dec-96  60  dec-94  60  dec-92  90  dec-90  90  Loan losses, net  Sources: The banks’ reports and the Riksbank. 6  BIS Review 67/2004