Is This The Biggest Housing Bubble Ever?

In September of 2015, not long after Sweden followed the SNB and ECB in going “full NIRP”, we warned that “Sweden Goes Full Krugman, Gets Massive Housing Bubble”, in which we first showed the unprecedented surge in Swedish home prices, which have been the one asset class to “benefit” the most from the Riksbank’s ultra-loose monetary policy hoping to stimulate inflation, even as broader economic inflation failed to materialize.

Since then things turned increasingly more surreal for Swedish home prices, culminating with a very explicit warning from Moody‘s in March of 2016, in which the rating agency warned that as a result of NIRP, the country is most at risk of an “ultimately unsustainable asset bubble.

… the unintended consequences of the ultra-loose monetary policy are becoming increasingly apparent — in the form of rapidly rising house prices and persistently strong growth in mortgage credit“, adds Ms Muehlbronner. In Moody’s view, these trends will likely continue as interest rates will remain low, raising the risk of a house price bubble, with potentially adverse effects on financial stability as and when house prices reverse trends. In all three countries, households are highly leveraged, and while they also have high levels of financial assets, returns on these assets will be under increasing pressure if the negative interest and yield environment persists.

Moody’s also said that “the Riksbank will find it difficult to achieve its objective of significantly pushing up consumer price inflation in a deflationary global environment, while the sustained and strong growth in mortgage lending and house prices risks leading to an (ultimately unsustainable) asset bubble.”

Nearly a year and a half ago, we concluded that we expect “this latest warning to be soundly ignored because after all, what else can the central banks do in this global coordinated effort to stimulate economies with ever more debt, which by definition can only work if rates are not only at zero, but increasingly more negative.”

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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