Abstract
Swedish authorities and international organizations that comment on Swedish economic policy have argued that household debt is too high and a threat to financial and macroeconomic stability (FMS). But household debt may become a threat to FMS under essentially three conditions: (1) Household debt becomes too high relative to household assets. (2) Households’ debt service becomes too high relative to incomes and payment capacity. (3) Households use home-equity withdrawals—made possible by rising house prices—to finance an unsustainable overconsumption of macroeconomic significance.Two Swedish structural features mitigate the risks. First, mortgages are a safe cash cow for banks and contribute to financial stability. Second, the mortgage rates are not exogenous but indirectly controlled by the Riksbank, and it sets the policy rate to maintain FMS.Regarding condition (1), aggregate household assets are much larger and have grown much faster than debt. Net wealth was twice the debt in 1985, five times in 2024. 78% of borrowers have home equity exceeding 30%, more than any housing price fall during the last 50 years. Regarding condition (2), debt service of borrowers is not high relative to incomes, because modest LTV ratios mean that required amortization rates are modest. Regarding condition (3), there is no indication of any debt-financed overconsumption (undersaving) of macroeconomic significance. HEW is not unusually high, the saving rate is at a historical high, and the share of durable consumption in total consumption expenditures is normal.Thus, none of the three conditions is present. Swedish household debt is neither too high nor a threat to financial or macroeconomic stability.