Across the country, apartment prices rose by only one percent in October while house prices fell by the same mark.

In the same month, the Riksbank announced that Sweden’s benchmark interest rate, the repo rate, is to remain unchanged at 0.25 percent. Yet indications point to an increase during 2010.

The current financial climate is creating a lot of hand-wringing for house-owners wanting to sell.

”There is a lot of psychology in the housing market at the moment and the likely rise of interest rates is starting to bite,” Claudia Wörmann of the Association of Swedish Real Estate Agents (Mäklarsamfundet) told the TT news agency.

”We have a record low interest rate and more buyers than sellers which results in higher prices,” she added.

”A year ago it was exactly the opposite.”

Uncertainty about when interest rates may start to rise has caused the market to lock up as potential sellers wait to put their homes up for sale in anticipation of higher prices, limiting the choice for those looking to buy.

House prices in Stockholm and Gothenburg decreased by one percent in October, while in Malmö they sank by five percent.

Meanwhile, apartment prices in central and surrounding Stockholm grew by three percent.

In central Gothenburg apartment prices remained the same but grew by two percent in the city’s suburbs.

Apartment prices in Malmö took the worst nosedive of the Sweden’s big citys, however, sinking by 3 percent in central areas and and 6 percent in the suburbs.

The slowdown in housing prices comes on the heels of a report released earlier this week by the Swedish Financial Supervisory Authority (Finansinspektionen) warning of the risks posed to the financial system by the current climate in the real estate market.

The report points towards a possible housing bubble due to a flood of new buyers enticed to enter the market with little capital due to historically low interest rates.

”Since interest rates are expected to increase sharply within the next one to two years, and unemployment is continuing to rise, a large number of households may experience payment problems,” the report stated.

While the report said Sweden’s banks could likely withstand real estate credit losses, the agency emphasized the need for banks to assess creditors more rigorously.