Yearly Archives: 2022

Are Swedish House Prices Too High? Why the Price-to-Income Ratio Is a Misleading Indicator

“Are Swedish House Prices Too High? Why the Price-to-Income Ratio Is a Misleading Indicator,” first version March 2022, revised January 2023. Paper.

Figure 1.2. The preference-adjusted user-cost-to-income ratio and the negative of the preference-adjusted price-to-income ratio (percentage deviation from historical averages).


According to ECB (2022) and European Systemic Risk Board (2022), Swedish owner-occupied housing (OOH) was overvalued by about 55% in 2021q2, the largest overvaluation in the EU and EEA; according to European Commission (2021) by at least 30% in 2020q4. These assessments affect warnings and recommendations issued for Swedish economic policy and shocks in EBA stress tests of Swedish banks.

But the large overvaluation assessments are mainly due to the use of misleading indicators: deviations of price-to-income (PTI) and price-to-rent ratios from their historical averages. These disregard mortgage rates and other housing costs and lack scientific support. According to a large housing literature, the user cost of housing (not the purchase price) is the appropriate measure of cost of living in OOH, the cost of the housing services that the OOH delivers.

The user-cost-to-income (UCTI) indicator (the deviation of the UCTI ratio from its historical average) is a natural measure of valuation and affordability and has strong scientific support. New improved estimates of the indicator are constructed, including adjustment for a preference shift during covid in favor of larger and better housing.

For Sweden, the UCTI and PTI indicators are strongly negatively correlated and have opposite signs (see figure 1.2). If the UCTI indicator is right, the PTI indicator is consistently wrong.

According to the UCTI indicator, Swedish owner-occupied houses have since 2010 become increasingly undervalued (not overvalued), by a maximum of 33% in 2019q4. Due to rising electricity prices and mortgage rates, they have since become less undervalued, but were still undervalued by 17% in 2022q4.

The problem of misleading indicators and overvaluation assessments is not restricted to Sweden but concerns several countries in the European Union. The relevant and informative indicators presented in the paper allow more reliable and appropriate valuation assessments.

Monetary Mystique and the Fed’s Path Toward Increased Transparency

“Monetary Mystique and the Fed’s Path Toward Increased Transparency,” chapter, in  King, Robert G., and Alexander L. Wolman (eds.), Essays in Honor of Marvin Goodfriend: Economist and Central Banker, Federal Reserve Bank of Richmond, 2022, 289-300.


Marvin Goodfriend’s paper “Monetary Mystique: Secrecy and Central Banking” is a masterpiece: It is an extremely well-written, meticulous, and fair analysis and critique of the Federal Reserve’s defense of its practice of secrecy in monetary policy and central banking. His critique was devastating, and he completely demolished the Federal Open Market Committee’s (FOMC) arguments in the most precise and convincing way. Nevertheless, it took the Fed many years to reach the current standards of transparency and accountability in monetary policy.