4 ms·

Makes sense. So, if you don't mind me asking, how much are people paying for an average home? How much is an average salary?

alkonaut 9y ago
Varies, of course. Average house is basically $100 to $350k but the average in Stockholm is probably around $1M depending on what areas you count. Not sure what the average salary is, but loan caps now are ~5 times the household (gross) salary. which sets the equation somewhat. So a couple buying a stockholm home at $1M today (which isnt an uncommon price) would be borrowing say 75-80% of that, so making at least $1Mx0.8/5 as a couple or $1Mx0.8/5/2 each, or $80k/year. That's a good salary, but more commonly this couple would be selling something they made a nice profit on, and borrow less, lowering the income requirement. This equation could be cut in 2 for a more average (4MSEK house, not 8MSEK) city or cut in 3 for more rural areas. Salaries fall off slower than house prices do, so rural areas spend less on housing than city dwellers.
- charlesdm 9y ago
  I'm assuming that $80k/year is gross? Given Sweden has high income taxes, borrowing say $800k on a $40k net salary (for a house!) seems like extremely bad financial management. Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).
  - alkonaut 9y ago
    Yes gross. $80k gross is around $53k net (depends on where you live but roughly). Now, remember that reason we are in this mess is because interest rates are so low. We still have pretty low living costs. Our $1M house at 80% is pretty cheap, due to low interest rates. Now, everyone knows interest rates can and will be higher in the future, but people have to buy on the current market regardless (And everyone seems to accept to have less spending money when interest rates double or triple). The calculation now for our couple with $100k household net income isn't all that bad. The monthly "rent" for the house is between $2k and $3k of which $1.2k is down payment ($24k-36k year). Double the interest rates from 2% to 4% and it's $3k to $4k/month. I think spending over 50% your net income on living costs is proabably a limit to look out for - and that will certainly happen to these people should interest rates go north of 5% or there about. We also need to remember that in Sweden people generally don't save up for a rainy day. I'm not saving for retirement, kids edication, risk of being ill etc. So in a nanny state the equation is slightly different than in say the US. > Which sane person who is good with money does that? It doesn't matter so long as it is at least one person in the auction for each house does it. If there are no homes to rent and nothing is built, there will be competition for the existing homes on the market. > not unrealistically, an underwater house during your lifetime This is definitely a risk. And banks are now lending less and less. With a 25% down payment the bank will know the hose can take a 25% correction and still be over water. But the scary bit is of course that if there is a 20% correction, no one can move, and no one will consume anything for a very long time, which will lead to pretty significant economic fallout.
    - xbzbanna 9y ago
      You're talking about these interest rates as though they can just move around - are these adjustable-rate mortgages? In the US, the standard mortgage has a fixed rate. So people with those mortgages would benefit from increased interest rates and/or inflation in the wider economy.
      - mijamo 9y ago
        Rates in Sweden are adjustable. Recipe for a future desaster and huge pressure on the Central Bank should they move up their rate... As a French living in Sweden,this system seems sooo fucked up but everybody seems to think it's normal.
      - alkonaut 9y ago
        Yes, many homeowners have all or a large part of the mortgage at a rate adjusted several times per year. Right now these variable rates are around 2%. So a lot of people will see their interest rate expenses double if (when) rates normalize at say 4%. I have my mortgage split between 5year fixed, 2 year fixed and the 3month rate, in order to limit my exposure to variations somewhat. The general consensus is long fixed mortgages are a poor economic choice for those that have the economic margins to be on the variable rates, since the banks margins are so much higher.
        marvin 9y ago
        Of course, most people who borrow 80+% can't _really_ afford the risk of an adjustable-rate mortgage, but they think they can because rates are always low and will never go back up ;)
        alkonaut 9y ago
        Banks do stress tests at 7% interest rate which was a reasonable "high" interest rate 10 years ago, but now it seems almost unimaginably high. So I think people (and banks) have calculated with higher rates, but there is always illness, divorce, unemployment... Lots and lots of people would have a pretty miserable economy if interest rates go over 6% (i.e triple) - spending most of their money on mortgages. So this creates the risk that rates will be self sustaining at a low level because even a 2% increase will reduce consumption and halt inflation pretty quickly.

alkonaut 9y ago

Varies, of course. Average house is basically $100 to $350k but the average in Stockholm is probably around $1M depending on what areas you count. Not sure what the average salary is, but loan caps now are ~5 times the household (gross) salary. which sets the equation somewhat. So a couple buying a stockholm home at $1M today (which isnt an uncommon price) would be borrowing say 75-80% of that, so making at least $1Mx0.8/5 as a couple or $1Mx0.8/5/2 each, or $80k/year. That's a good salary, but more commonly this couple would be selling something they made a nice profit on, and borrow less, lowering the income requirement. This equation could be cut in 2 for a more average (4MSEK house, not 8MSEK) city or cut in 3 for more rural areas. Salaries fall off slower than house prices do, so rural areas spend less on housing than city dwellers.

charlesdm 9y ago
I'm assuming that $80k/year is gross? Given Sweden has high income taxes, borrowing say $800k on a $40k net salary (for a house!) seems like extremely bad financial management. Which sane person who is good with money does that? That sets you up for a life of misery (and not unrealistically, an underwater house during your lifetime).
- alkonaut 9y ago
  Yes gross. $80k gross is around $53k net (depends on where you live but roughly). Now, remember that reason we are in this mess is because interest rates are so low. We still have pretty low living costs. Our $1M house at 80% is pretty cheap, due to low interest rates. Now, everyone knows interest rates can and will be higher in the future, but people have to buy on the current market regardless (And everyone seems to accept to have less spending money when interest rates double or triple). The calculation now for our couple with $100k household net income isn't all that bad. The monthly "rent" for the house is between $2k and $3k of which $1.2k is down payment ($24k-36k year). Double the interest rates from 2% to 4% and it's $3k to $4k/month. I think spending over 50% your net income on living costs is proabably a limit to look out for - and that will certainly happen to these people should interest rates go north of 5% or there about. We also need to remember that in Sweden people generally don't save up for a rainy day. I'm not saving for retirement, kids edication, risk of being ill etc. So in a nanny state the equation is slightly different than in say the US. > Which sane person who is good with money does that? It doesn't matter so long as it is at least one person in the auction for each house does it. If there are no homes to rent and nothing is built, there will be competition for the existing homes on the market. > not unrealistically, an underwater house during your lifetime This is definitely a risk. And banks are now lending less and less. With a 25% down payment the bank will know the hose can take a 25% correction and still be over water. But the scary bit is of course that if there is a 20% correction, no one can move, and no one will consume anything for a very long time, which will lead to pretty significant economic fallout.
  - xbzbanna 9y ago
    You're talking about these interest rates as though they can just move around - are these adjustable-rate mortgages? In the US, the standard mortgage has a fixed rate. So people with those mortgages would benefit from increased interest rates and/or inflation in the wider economy.
    - mijamo 9y ago
      Rates in Sweden are adjustable. Recipe for a future desaster and huge pressure on the Central Bank should they move up their rate... As a French living in Sweden,this system seems sooo fucked up but everybody seems to think it's normal.
    - alkonaut 9y ago
      Yes, many homeowners have all or a large part of the mortgage at a rate adjusted several times per year. Right now these variable rates are around 2%. So a lot of people will see their interest rate expenses double if (when) rates normalize at say 4%. I have my mortgage split between 5year fixed, 2 year fixed and the 3month rate, in order to limit my exposure to variations somewhat. The general consensus is long fixed mortgages are a poor economic choice for those that have the economic margins to be on the variable rates, since the banks margins are so much higher.
      - marvin 9y ago
        Of course, most people who borrow 80+% can't _really_ afford the risk of an adjustable-rate mortgage, but they think they can because rates are always low and will never go back up ;)
        alkonaut 9y ago
        Banks do stress tests at 7% interest rate which was a reasonable "high" interest rate 10 years ago, but now it seems almost unimaginably high. So I think people (and banks) have calculated with higher rates, but there is always illness, divorce, unemployment... Lots and lots of people would have a pretty miserable economy if interest rates go over 6% (i.e triple) - spending most of their money on mortgages. So this creates the risk that rates will be self sustaining at a low level because even a 2% increase will reduce consumption and halt inflation pretty quickly.