Housing market bubble "will burst"

5:00 min

A government agency says Sweden is in the midst of a housing bubble, with an overinflated market which will burst as interest rates return to a "normal" level of 5.5 percent.

In the large cities, the National Housing Credit Guarantee Board (BKN) said that in some cases, house prices can be 20 percent above what is reasonable.

In its report published on Wednesday, BKN said that house prices were too high and were propped up by low interest rates which would in future go up to 5.5 percent.

However not everyone agrees that the housing market is set to deflate with Hans Lind a real estate economist at the Royal Institute of Technology stating that there is no housing bubble in Sweden and won't be in the near future.

"The development in other countries makes it very difficult to see what will happen. However when you look at mortage rates in comparison to disposable income then Sweden is fifty percent better off than Denmark."

"I see a situation in the future where householders think, okay, the interest rates are going up and we need to spend more of our income on our mortgages.But we are not going to sell our house underpriced and we will live in the house longer than maybe we had planned," Lind said to the TT news agency.

He also believed that for those forced to sell, house price levels won't drop that much anyway.