In October, the National Economic Institute warned that the housing market was in danger of crashing and it was taken seriously because the National Economic Institute has not warned of such a thing in many gentlemen’s years. And certainly this should be taken seriously as housing prices have skyrocketed and the mortgages on the Swedes have reached record levels.
The low mortgage rate combined with high housing prices mean that many Swedes will be really at risk when the mortgage rate rises again and it is probably only a matter of time until it happens.
33% of homeowners do not manage 4% in mortgage rates
The Good Finance has already stated that it is very possible that the policy rate will go up within the next few years and in a survey conducted by Sifo , it was found that about 200,000 Swedes would not be able to raise the mortgage rate. Young people with a low income risk being hit extra hard. This is what Sifo’s survey showed in brief:
- 32% of people surveyed said they would cope with a rate hike.
- 26% did not know if they would.
- 33% responded that they would not be able to meet interest rates around 4% or higher, ie at the level we had in Sweden as late as summer 2012.
Of course, this is not good at all, but the fact is that it is not a question if we will one day get a mortgage interest rate around 4%, it is just a matter of when. Not only that, if the housing crash happens, people will be left with large mortgages for homes that are dropping in value and many will probably be forced to sell their homes.
Hopefully, no major housing crash will happen, but it would obviously be good if the housing price increases slowed down and it could actually be on the way. In November, average prices fell for the first time in a very long time.
It was certainly not a matter of price rises exactly, the price of the condominiums fell by 0.3% and the villas by 0.7%, but at best this could be a sign that housing price increases are slowing down. We must hope so.
Buying, selling or waiting?
So how do you do in today’s situation with soaring housing prices, low mortgage rates and an (possibly) approaching cooling of the housing market? It depends on your situation:
- If you are not already a home, it is probably best not to be attracted by the low mortgage rates and instead wait to buy a home. After all, it is not entirely impossible that housing prices will plummet in the next few years, so even if the mortgage rate goes up, you will probably profit from waiting anyway.
- If you do not have a home but absolutely want to buy one (despite the high prices) you should not make your calculation after today’s low interest rates. Instead, find out if you could afford to pay a mortgage interest rate of 4 – 5% instead as it is possible that the interest rate will end there within a few years.
- If you already have a home and want to switch to a cheaper home, this is obviously the way to do it now. If you instead want to switch to a more expensive home, it is probably better to wait.
- If you have a home that is worth more than ever today and has the opportunity to move into a rental property, you can make lots of money. Sell your home, cash in big money, invest the money well, move into the rental property and in a few years when the house prices probably have fallen, you buy a home again. Sure, there may not be many people who can think of doing this, but if you do, you can earn hundreds of thousands of dollars or more if you are lucky. Of course, it is not possible to predict the future, but the risk that housing will be even more expensive in a few years is very small, not least when many poor margins are forced to sell their homes.
buy or sell housing?