Since looking at debt, I have always thought that working out how to replace mortgage lending on houses was going to be the most difficult issue. But it looks as though it is one of the most important issues to sort out otherwise, as with Sweden, we risk another crisis just because we can borrow to buy our own houses.
A new IMF report warns of rising financial instability and unsustainabe household indebtedness in Sweden:
Financial instability is an increasing concern. House price increases have picked up again, exceeding 71⁄2 percent annual growth for single-family homes and 121⁄2 percent for tenant-owned apartments in April. Household credit growth also remained strong, pushing household indebtedness to almost 175 percent of disposable income in 2013, and over 190 percent if debt from tenant- owned housing associations is included. Recent data indicate that household debt ratios are high across all income groups, but particularly so for indebted lower-income households who are especially vulnerable to income, interest rate, and house price shocks. The aggregate net asset position of households is solid, but a large share of assets is illiquid and has limited value as a buffer. As a consequence, a large and sudden drop in house prices would lower consumption, employment, and growth, and ultimately…
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