House prices in Sweden are falling – but still far from bottoming out

The interest rate increases have had a notable effect on the Swedish housing market, and many analysts predict housing prices will continue to fall.

The interest rate increases are hitting the housing market prices hard at the moment. Photo by Lawrence Chismorie / Unsplash

However, for the moment, property sellers are slowing down the development.

“The sellers find it difficult to accept the new situation,” professor of economics at Södertörn University Mats Bergman explained.

Sweden’s central bank (Riksbank) has been raising the key interest rate since Spring, and in line with that, prices in the housing market have fallen.

Several banks, including the Riksbank, predict that prices will plummet by 20 percent from their peak level.

“One should remember that what happened during the pandemic was not healthy either. We are comparing ourselves to a unique period where the market was completely crazy, and we also had low interest rates and low inflation. You might even be able to talk about a normalisation instead of a disaster,” Claudia Wörmann, housing economist at SBAB, noted.

Interest rate effect

The interest rate increases are hitting the housing market prices hard.

But the price increases of food, energy, and fuel also make consumers more cautious, leading them to wait when it comes to buying a home, according to Cecilia Hermansson, a Swedish researcher focusing on real estate and finances.

“It is quite a dramatic development for many, both in terms of interest rates and prices,” she said.

The fact that prices have not fallen further, despite most people expecting the policy rate to land at just over 3 percent next year, is due to the fact that there is resistance in the market, Bergman notes.

“The sellers find it difficult to accept the new situation and are resisting the price drop. We see this, among other things, in the fact that it takes longer before homes are sold. The sellers are holding out and hope this will be a temporary slump,” he noted.

It’s hard to predict when things will turn around, Hermansson added.

Bergman, on the other hand, thinks the market could bottom out sometime in 2023.

“If the scenario surrounding the key interest rate is correct and the interest rate levels off in the Spring, and if the economic downturn is not particularly severe, then the market will probably stabilise next year. But it is difficult to predict,” he told the news bureau TT.

When could housing prices rise again?

For prices to rise, the situation must become more stable, and the world economy needs to start recovering, according to Hermansson.

“(For the prices to rise), I think we need to get signals that the Riksbank is starting to lower interest rates, that inflation is low again, and that it won’t rise again next winter,” she pointed out. 

Bergman does not believe that housing prices will rise in the same way as they have in recent decades once prices have stabilised.

“Prices have risen to a level that is very high in relation to incomes. My prediction is that we cannot count on 20-30 years of rising prices,” he concluded.

Member comments

  1. Unfortunately the Riksbank, along with most central banks, are doing the wrong thing at the moment. The current inflation is driven by factors which raising interest rates will have little to no effect on.

    Many central banks have government-set mandates to target inflation above or below a certain threshold, regardless of the underlying cause. It’s pure madness to damage economies in this way.

    One thing I’ve learnt over time is that no matter how experienced, how influential they are, nobody really knows what they are doing in the world of economics and finance. There are just too many variables and it’s impossible to predict how people will act. Everyone is ultimately winging it, it’s quite frightening.

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Cost of living: ‘Enormous’ increase in food prices in January in Sweden

Food prices are still on the increase in Sweden, at an even higher rate than at the end of 2022. Here's why.

Cost of living: 'Enormous' increase in food prices in January in Sweden

The increase in food prices in January was 1.4 percent – one of the largest increases reported since food prices started rising almost a year ago.

Some items saw “enormous” increases in January compared with December, Ulf Mazur, CEO and founder of independent comparison site Matpriskollen, told TT newswire.

“There’s no stopping it.”

In January, the price of groceries increased 1.3 percent on December, with the price of food specifically increasing by 1.4 percent. Food prices have now gone up 16.3 percent in the last 12 months.

“It was a bit calmer during the autumn in September, October and November, but now that price increases are back we’re seeing enormous increases,” Mazur said.

Items such as snacks, fish and shellfish, vegetables and bread are among those which have seen the greatest increases.

Some categories, such as beer, sweets and sugar, have previously not risen in price significantly. That has now changed, with these items also rising sharply in price last month.

Some examples highlighted by Mazur include one brand of frozen cod portions, which increased by 64.2 percent in January compared to December, one chain’s own-brand sugar cubes which went up by over 55 percent, and caster sugar which increased by 44 percent.

“With single items increasing by so much – it’s like a snowball, it never ends,” he said.

This time, Coop has hiked its prices the most of all the major supermarket chains, according to Matpriskollen’s analysis. 

“Coop was a bit lower when it came to price increases before, but they made up for that in January,” Mazur said.

“There’s such a cost pressure now.”

With production costs rising, food producers are negotiating price increases with supermarkets. However, not all categories are negotiated at the same time, which is one of the reasons some items haven’t gone up in price as fast as others.

In some cases, this delay can last for up to six months.

This is one of the reasons why Mazur expects to see continued price hikes during spring, even if inflation were to stop immediately.

“The rate of price increases will go down, but prices will continue to rise,” he said.

When production costs lessen, prices won’t start to go down again, rather they’ll stay still at the high level they are at now, he explained. Coffee, which recently dropped by around 10 kronor per kilo, is one exception.

“It shows there’s a will from producers to lower prices again when costs drop.”