27 July 2022
16:04
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House prices in Sweden have fallen 6 percent in just two months. The Riksbank predicts an even bigger correction. ‘That could also happen to the rest of Europe’, warn economists.
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House prices in Sweden fell by 3.8 percent in June compared to the previous month. That is the largest decline in 14 years. Prices corrected 6 percent in just two months. In the capital Stockholm, prices have fallen by 8 percent since the peak in March.
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Only in 2017 and 2008 did the Swedish real estate market experience an even bigger decline this century, with prices falling by 10 and 16 percent respectively. However, the dip is not over yet. The first figures of July from the real estate agents suggest an additional fall in prices.
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‘The pressure on house prices comes from different directions’, explains real estate agent Erik Olsson. ‘Due to the high inflation, especially of energy and food, there is less left for households at the end of the month. In addition, interest rates have risen sharply, which makes borrowing more expensive.’
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Interest Rate Increases
At the end of June, the Riksbank raised interest rates by 50 basis points to 0.75 percent. Economists expect another 50 basis points in September after inflation peaked at 8.5 percent. The central bank expects to raise interest rates to 2 percent by early 2023. Long-term interest rates have risen to 1.4 percent, although they have fallen somewhat in recent months due to recession fears.
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Only in the event of a decline of 35 to 40 percent, the homes as mortgage collateral no longer threaten to cover the loans.
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The central bank warns that real estate prices could fall by 16 percent by the end of 2024. Though she doesn’t think it’s a disaster. That would bring prices back to pre-pandemic levels. The credit institutions can handle that. Only in the event of a decline of 35 to 40 percent, the homes as mortgage collateral no longer threaten to cover the loans.’
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The central bank recalls that Swedish households borrow relatively little for their houses and apartments. For new loans, the own contribution amounts to 33 percent on average.
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house tree
‘The Swedish real estate market may be a harbinger of what will happen in many European countries’, thinks Nordea, Scandinavia’s largest banking group. ‘Although the price drop there will probably be less pronounced. We must not forget that Sweden has had a housing boom. Between 2010 and 2021 Swedish homes became 82 percent more expensive, compared to a price increase of 32 percent in the eurozone.’
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Swedish real estate stocks have taken a lead on a sharp correction. The OMX Stockholm Real Estate Index has halved since the New Year. The developer of housing projects Bonava
crashed 60 percent, although that is also because the company was active in Saint Petersburg, Russia, where it stopped its activities. The house landlord Wallenstam
plummeted 47 percent.
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