A real problem: prices in house rise despite coronavirus!

Market watchers assumed that house prices would remain unchanged or even fall during the pandemic. That's not what happened, however.

The coronavirus pandemic is a new threat to Europe's economies: house price bubbles. rent cars

On the northwest side, after the well-heeled Bromma enclave, the million-euro houses traveled from the center of Stockholm.

That's changing, however.

Last week two 1930's properties were listed for € 1.4 million each in Södra Ängby, a suburb beyond Bromma. In Hässelby, on the northwest edge of the town, a house overlooking the lake was €1,5 million.

It's an indication of the times. Although these properties still have to be sold, statistics suggest that they can well achieve their high assessments.

According to a recent report from the price tracking company Valueguard, average property prices throughout Sweden have increased 19% in the past 12 months. The increase is sharper for homes than for apartments – 23% versus 12% – and prices are around well-trained Bromma, according to local people working in property sales, rose approximately 25%.

"I've been working as an Immobiliary Agent for seventeen years, and I've never experienced prices growing as fast as we have seen last year," said Pär Gunnarsson, a Swedish real estate company operating in Bromma in Fastighetsbyrån. "It's extremely extreme."

The situation in Sweden shows a broader trend across Europe, which surprised policymakers.

When the pandemic started, market observers usually assumed that the prices of homes would remain stable at best and could drop as the economic slowdown worsened but this is not what happened.

As citizens were confined to their homes and could not spend money on restaurants or travel, many people concentrated on upgrading living space.

This appetite for a larger flat or ideally a home led to a higher average prices on a number of housing markets, particularly in parts of Central and Northern Europe, data show.

Prices rose 15 percent in the Netherlands over the past year, compared with 12 percent in Austria. In Germany, prices rose by 11% and in the United Kingdom by 10%.

The Swiss bank UBS has highlighted the risk of housing market bubbles in the cities of Munich, Frankfurt, Paris and Amsterdam, and the overvalued value of Stockholm and London.

At the same time, many national central banks continued to burn fuel and kept interest rates close to record low to support companies' survival.

It has also made it cheaper for households to lease more to meet their dreams of home buying.

The concern now is that with the recovery of the wider economy, central banks will have to raise interest rates to shock growth and domestic buyers will be left with debts that they are unable to service. If they then stop spending, the recovering economy would be hit. If their new houses are to be sold, this would reveal a bubble as it emerges.

"Those were surprising developments when it comes to house prices in the last 12-15 months, I don't want to use words like concerned or not concerned," said Cecilia Skingsley, the deputy governor of Sweden's central bank, the Riksbank. "We hadn't had a pandemic in modern times, so we weren't aware how it would go and now we're seeing prices rising in many similar countries, not only Sweden, like France and the U.K., etc."

One of the first banks to dial the boost was the central bank of Iceland, which increased its principal interest rates by 0.25 percentage points to 1 percent last week.

The rising cost of housing is noted by other central banks across Europe.

The European Central Bank's May Financial Stability Review stated that while house-price growth has changed in the 19 countries that use the euro, prices are upward.

"House prices are still booming but price correction risks remain high," the ECB said.

Financial oversight agencies or FSAs, which are responsible for financial stability in many European countries, also keep a close eye on things.

At the beginning of the pandemic in Sweden, the FSA allowed mortgage holders to stop paying regularly on their loans.

This option will be removed on 31 August.

"The risks are increasing so that there is no good reason to keep the rules relaxed," said the Swedish chief of the FSA, Erik Thedeen, to the local media.

The United Kingdom is due to phase out from June 30 this year a tax break introduced on home purchases in July 2020.

While economists generally believe that proper management by central banks, FSAs and legislators can prevent problems on the housing markets, many are increasingly concerned about the risks for the coming year.

"I am a little disturbed that there is a risk of overheating with stimulus from the central bank and lawmakers," Annika Winsth, Chief Economist at the large Nordic bank Nordea, told Swedish daily SVD. "This creates a bubble risk in many sectors."

For now, Stockholm buyers keep struggling over their dream houses, with deals often made before a house even enters the open market.

One of the few undeveloped housing plots which still remain in the suburb was sold in Hässelby last week.

Only the remains of a wooden summer cottage dating back to the middle of the previous century were present, but still listed at around €300.000.

In a few days, it was probably sold off the listings.

"Every house on the market has a great interest," said property agent Gunnarsson. “And as soon as a lot of people are interested in the same thing, prices rise.”

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