issue. after all, we have witnessed rapid price increases and even faster declines in the housing market, for example for tenant - owned apartments in metropolitan areas during the crisis at the beginning of the 1990s. in principle, i would be prepared to agree, if it proved impossible to explain the price rises with fundamental factors. in order to see if there are fundamental factors that could explain the recent price increases, it makes sense to look at the driving forces that could have been important for house prices, i. e. interest rates, primarily the post - tax real interest rate, household disposable income, the supply of housing and the demand that results from people moving to metropolitan areas in particular. as regards interest rates, both real and nominal rates have fallen continuously since the mid 1990s. for households this has entailed significantly lower mortgage costs. at the end of 1992 the banks'average nominal lending rate to households was just over 15 per cent and inflation stood at just over 2 per cent. now, the average lending rate is around 6 per cent, while inflation has remained at about the same level. so households can incur more than double the amount of debt today and still have lower debt - servicing costs. the favourable economic climate from the mid 1990s also contributed to a drop in unemployment, on the one hand, and an increase in wages on the other. all in all, this led to a rise in household disposable income. moreover, disposable income has continued to increase during the period of relatively weak economic activity in recent years. this has been mainly due to unemployment remaining low, in spite of the economic slowdown. so low interest rates and high growth in household disposable income are two fundamental factors that could explain the rise in prices in the housing market. furthermore, there is no excess supply in the housing market similar to that seen at the beginning of the 1990s when housing construction was encouraged through various kinds of grants and tax subsidies. instead, there is very little construction of housing today, and discussions are concerned rather with how to step this up. in addition to the low level of housing construction, demand for housing has risen mainly in metropolitan areas due to the greater numbers moving to these regions during the latter part of the 1990s. it is not surprising that a relatively constant, low supply, as well as high demand, should have contributed to the substantial price rises. thus, low interest rates, an increase in disposable income and a low supply

lars nyberg : developments in the property market speech by mr lars nyberg, deputy governor of sveriges riksbank, at the seminar on properties, malmo, 2 september 2003. * * * i would like to begin by thanking you for the opportunity to come to malmo and speak about the riksbank's view of developments in the property market. of course, these developments are not only of interest to those of us present today. they are important to all people, as movements in property prices have significance both for the real economy and financial developments in sweden. when property prices rise, we feel more financially secure and increase our consumption, which leads to a rise in employment and growth. we might even borrow a bit more from the bank if we can. normally, there is no harm in this. but there is a limit, of course, to the burden of debt households can bear without giving rise to worrisome risks. should the debt of commercial property companies also swell, it could entail risks for the stability of the entire banking system, a point that was illustrated so well during the crisis at the beginning of the 1990s. on account of this, the riksbank monitors developments in the property market carefully. we usually divide it into two segments, which give rise to different questions and reflections. the first segment is the housing market. since 1997, housing prices have risen by just over 50 per cent, measured in current prices. the price boom has continued in spite of the generally weak economic activity of the last two years. this is a new experience which differs from previous business cycles, when prices have tended to recede during periods of economic decline. similar developments have occurred in other countries, for example in the us, england and holland. the situation could appear worrying, particularly given that the rise in housing prices has been accompanied by an increase in household indebtedness. the upsurge in prices has raised questions about the healthiness of this trend. are the price rises in the swedish housing market the result of a bubble? are the higher levels of household indebtedness sustainable? the riksbank's view is that the current price developments in the housing market do not reflect any speculative expectations of future price rises which would warrant the term “ bubble ”. nor is household indebtedness a bigger problem than usual for this stage of the business cycle. i will explain this in a moment. the other segment is the market for commercial property. here,