to see housing as a financial asset, as opposed to somewhere the buyer intends to live. these countries have so - called buy - to - let markets, which involves buying a second house or apartment with a view to letting it. buyers hope that the property will rise in value in much the same way as a share, yielding a return in the process. in dublin the situation has got to the stage where rents have dropped in recent years, which should have resulted in falling house prices. but prices have continued to climb. it is likely that a number of markets contain elements of a speculative bubble, where price developments bear no relation to the fundamental factors that normally affect supply and demand and instead are driven by expectations of future price increases. commercial property prices in sweden at the beginning of the 1990s gave us a clear example of how such a market works. in sweden we don ’ t see any indications that speculation is of any great significance for the formation of housing prices. i think there ’ s reason to wonder whether such imbalances really can arise in the swedish market. swedish people live in their houses or apartments. perhaps the swedish tax system, both as regards property tax and tax on rental income, has made it unprofitable for households to buy to let. australia, for example, has considerably more favourable tax rules. so, to sum up, it seems that both housing prices and household borrowing in sweden are fairly well explained by the fundamental factors that usually govern supply and demand. this doesn ’ t mean of course that prices cannot fall ; far from it. uncertainty about income developments and rising interest rates could, for example, curb demand at the same time as the supply increases when the construction of new homes picks up. in that case we should expect weaker price increases or even a drop in prices. but the prices shouldn ’ t fall as much or as fast as when demand contains obvious elements of speculation. financial stability so what is the outlook for the stability of the swedish banking system? what would happen if unemployment or interest rates were to rise? would we see a fast increase in the banks ’ loan losses as during the banking crisis? we have concluded in several financial stability reports that there indeed is cause for vigilance as regards developments in household debt, but that we don ’ t believe that these developments are a threat to the stability of the banking system. there are several reasons for this. one is that just mentioned, namely that we don ’ t see any obvious speculative tendencies in the housing

be updating this study with data for 2002 in the next financial stability report, to be published at the beginning of december. so it doesn ’ t appear likely that households as a group would run into payment difficulties in the event of an unexpected rise in interest rates or a decrease in incomes due to increased unemployment. and even if households should encounter considerable difficulties, it would not have any significant impact on the banks ’ risk capital. as i see it today, the issue of housing prices and household borrowing is not a question that affects the stability of the swedish banking system. it should be pointed out, however, that even though the risk to households as a group is small, individual households could be hit hard if their margins to cope with rising interest rates are narrow or if they suffer a loss of income in some shape or form. it ’ s important therefore that the banks ensure that their borrowers are well capable of coping with higher interest rates. price stability that both assets and debts are increasing in relation to incomes does, however, make households more sensitive to changes in interest rates and asset prices. a hike in interest rates would directly affect households ’ purchasing power, especially given that households are increasingly taking variable - rate loans. a drop in house prices would also reduce their wealth. so, should interest rates rise and housing prices fall, it would have a bigger impact than before on households ’ purchasing power, and thereby probably on consumption and saving as well. this brings me to the connection to price stability. now and again we hear concerns in the public domain about the effects that households ’ higher sensitivity to interest rates and asset prices could have on future consumption and thereby on economic developments in general. several voices have called for monetary policy to be more attuned to this. shouldn ’ t interest rates be raised to curtail a build - up of debt and a rise in housing prices? should housing prices fall rapidly, might not demand and thus inflation be affected in a way that is not taken account of in the riksbank ’ s forecasts? and, looking somewhat further ahead, might it not have a real economic impact that the riksbank would also have reason to take into consideration? these highly legitimate questions are often based on concerns that some kind of speculative bubble has been blown up, in much the same way as in the commercial property market in the early 1990s or in the equity market ten years later. let me first address the question of the forecasts. debt levels and developments in housing prices are