##balanced. the developments can be explained fairly well by factors such as disposable income, living costs, construction costs and the fact that there is relatively little new building, despite strong demand. supply is expected to increase at a slightly slower rate than demand over the coming years. my assessment is that at present no imbalances have been built up that could risk leading to a sharp fall in prices further ahead. however, the rapid increase in house prices and indebtedness occurring now is something we shall monitor closely. i would at the same time like to emphasise that monetary policy often involves difficult considerations. if i and my colleagues were to come to the conclusion that serious imbalances were building up in the economy in a way that threatened the stability of the payment system, or in a way that we felt would have serious consequences for the real economy in the future, we may want to take this into account when conducting monetary policy. however, so far, considerations concerning the effects of house prices and household indebtedness on other elements than inflation have only played a marginal role in monetary policy.

that households have increased their indebtedness can to some extent also be due to the changeover in economic policy that took place in sweden at the beginning of the 1990s, with a focus on price stability. public finances were consolidated and an inflation target was introduced. confidence in the low - inflation policy was established gradually and has brought greater stability to the economy, with lower inflation and interest rates. a more stable economy makes it easier to predict future developments in interest rates and inflation. this can in turn mean that the risks connected with slightly higher indebtedness are perceived as smaller. in recent years, household loans have largely been used to buy housing. the fact that the increase in lending to households has gone hand in hand with rising property prices is therefore no surprise. the rapid increase in house prices during the second half of the 1990s is partly due to the decline in interest rates. however, there are also other explanatory factors. naturally, income growth has also played an important role. other driving forces behind house price trends include demography and relocation flows that have contributed to a large demand for housing in certain areas of the country, particularly the metropolitan regions. there are also other factors that have had an impact, such as reduced housing subsidies and rising construction costs. there has also been relatively little new building since the crisis years, despite substantial demand for housing. nevertheless, it now appears that the trend regarding construction has turned. the increase in house prices has in turn contributed to a rise in the value of household wealth, as well as in the collateral for most of their loans. household debts as a percentage of total assets, which among other things include housing, equity and saving in insurance policies, have therefore shown relatively little increase, despite the fact that the loans have risen in relation to disposable incomes. the fall in interest rates has also meant that the percentage of households ’ disposable income used to pay interest expenditure after tax is currently low, despite the increase in indebtedness. is there reason to be concerned that households have acquired such large debts and house prices have risen so much that it could cause problems in future? to determine this, it is necessary to have some perception of the long - term sustainable levels. one point worth noting to begin with, is that the swedish nation as a whole has not increased its indebtedness in recent years. on the contrary, the large surplus on the current account indicates that external debt has declined. this should have