Housing Price and Household Debt Interactions in Sweden

45 Pages Posted: 28 Mar 2016

See all articles by Rima Turk-Ariss

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Date Written: December 2015

Abstract

Sweden is experiencing double-digit housing price gains alongside rising household debt. A common interpretation is that mortgage lending boosted by expansionary monetary policy is driving up house prices. But theory suggests the value of housing collateral is also important for household's capacity to borrow. This paper examines the interactions between housing prices and household debt using a three-equation model, finding that household borrowing impacts housing prices in the short-run, but the price of housing is the main driver of the secular trend in household debt over the long-run. Both housing prices and household debt are estimated to be moderately above their long-run equilibrium levels, but the adjustment toward equilibrium is not found to be rapid. Whereas low interest rates have contributed to the recent surge in housing prices, growth in incomes and financial assets play a larger role. Policy experiments suggest that a gradual phasing out of mortgage interest deductibility is likely to have a manageable effect on housing prices and household debt.

Keywords: Housing market, Household debt, Collateral, prices, debt, supply, variables, income, Housing Demand, Sweden.,

JEL Classification: E21, E41, E51, R21

Suggested Citation

Turk-Ariss, Rima, Housing Price and Household Debt Interactions in Sweden (December 2015). IMF Working Paper No. 15/276. Available at SSRN: https://ssrn.com/abstract=2754910

Rima Turk-Ariss (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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