'Deceptive Calm': Has Sweden's House Market Slump Paused?

As analysts adjust their predictions for Europe's sickest house market, one commentator implies it could be too soon for celebration

Johanna Englundh 5 July, 2023 | 1:00PM
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Events in the last year have handed Sweden the unenviable position of being Europe's worst housing market, but the last few months signs of life are showing once more. Analysts are now altering their price fall projections as a result. 

Swedes are among Europe's heaviest mortgage borrowers and the majority of policy holders have floating-rate loans, meaning rate hikes are passed on to households immediately.

With mortgage rates more than doubling during the last year it comes as no surprise Swedish house prices fell sharply when the first rate hike hit. In 2022 house prices were down 13%, with projections by Danske Bank the market would bottom out at -25%.

Unexpectedly, however, the Swedish housing market has proved resilient in 2023. Prices are starting to climb once more.

In May prices for both condominiums and houses were up 1-2% throughout the country, marking the fourth month in a row where condominium prices edged higher. At the start of June Danske Bank noted their previous projection of a price fall of 25% was probably "way too pessimistic".

"After basically unchanged prices for condominiums in Stockholm in May and a slightly upward trend since the turn of the year, we now conclude prices have bottomed out We are adjusting our assessment that the overall price drop is limited to 15%, which still reflects a certain further downside risk from the Riksbank's upcoming increases," Danske Bank chief economist Michael Grahn said. 

An improved outlook can also be seen in surveys by lenders SBAB and SEB, which both indicated for the first time in a year that more Swedish homeowners believe housing prices will rise than fall. Real estate agents have noted a shift in the market too.

"Compared with last fall and winter, when we only sold about 60% of the homes we had for sale, we have seen clear signs of stabilisation," real estate agent Bahar Nabavi, who brokers deals in central Stockholm and the surrounding suburbs for realtor Innerstadsspecialisten, said to Bloomberg mid-June.

"We are selling closer to 90-95% and the sales often take less time than last fall." 

Rate Hike Relief

With Swedes so vulnerable to interest rates the answer to the surprising price slump halt lies within the expectation of an end to rate hikes themselves. Riksbanken has flagged at least one more hike this year, so home buyers are focusing on the light in the tunnel.

"The era of rapid interest rate increases appears to be over and inflation has moderated, which has reduced uncertainty and made it easier for many to plan their home purchase," Länsförsäkringar Fastighetsförmedling chief executive said to daily newspaper Aftonbladet.

But for prices to really pick up speed again inflation must fall simultaneously with lower interest rates.

"Only when the key interest rate starts to fall and the economy strengthens will we be able to see rising housing prices again," Erik Wikander, vice president for real estate agent Svensk Fastighetsförmedling, states in a half-year review of 2023.

Swedbank expects a peak in mortgage rates at 5% at the end of the year and does not expect a rate cut from Riksbanken until April 2024.

'Deceptive Calm'

Although house prices seemingly are stabilising, and somewhat increasing, the number of sold homes continues to be low.

During the first five months of the year, 25% less condominiums and 19% less villas were sold, compared to the same period last year. Homes tend to sit on the market for longer and the sales that go through are mainly driven by individuals that are in a position where they must sell or buy something new.

With mortgage rates still in an upward trend further price falls seem likely.

"Housing prices, especially apartment prices, continue to show remarkably high resilience to the sharp rise in interest rates," says Robert Boije, chief economist at SBAB.

"But it can be a deceptive calm. Many condominium associations are facing increases in monthly fees in the future and mortgage interest rates will rise a little more."

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Johanna Englundh  Johanna Englundh is an editor for Morningstar in Sweden 

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