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MONEY

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.

Published: 26 November 2022 10:45 CET
Stockholm
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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MONEY

EXPLAINED: What is a Swedish ISK account?

Sweden’s government has proposed scrapping tax on ISK accounts with a balance of 300,000 kronor or less - but what are these accounts and how do they work?

Published: 15 April 2024 15:33 CEST
Updated: 20 April 2024 12:50 CEST
EXPLAINED: What is a Swedish ISK account?

What is an ISK?

ISKs, literally ‘investment savings accounts’ were introduced in 2012 as a way for people in Sweden to easily invest in shares and funds. An estimated 3.5 million people in Sweden have an ISK, with 75 percent of these accounts having a balance of 300,000 kronor or less.

How are they currently taxed?

They’re not subject to capital gains tax, but they are instead taxed at a fixed rate – known as schablonsskatt – an annual rate paid on the entire value of the sum held.

This differs from traditional AFs, where AF stands for aktie- och fondkonto or ‘share and fund account’, where any profits or losses on the sale of shares throughout the year must be declared individually in your yearly tax declaration.

If you have an ISK, you pay tax of 1.086 percent on your savings under current rules, which – to put it simply – means if you had 100,000 kronor invested you’d have a yearly ISK tax bill of 1,086 kronor, which you would pay whether your portfolio made a profit or not. Any figures needed for tax purposes are automatically added to your tax declaration by your bank, so there’s no need to do this yourself.

There’s a third type of investing savings account – a kapitalförsäkring or KF, which is an insurance product where shares, funds and other savings are held in your name by a bank or insurance company. A KF differs slightly from an ISK, but they are subject to the same amount of tax (although you might need to pay tax on a KF each quarter rather than each year). 

As a general rule, it makes financial sense to invest through an ISK or KF rather than another type of investment-based savings account if your yearly returns exceed the government loan rate – statslåneräntan – plus one percentage point. The government loan rate was raised to 2.62 percent at the end of 2023, meaning you should aim for your ISK or KF to have an average return of at least 3.62 percent.

In an AF, you pay 30 percent tax on any profit you make through sold shares in a tax year. If you make a loss, you pay nothing at all.

How do I open one?

Most consumer banks in Sweden, like Swedbank, SEB and Handelsbanken, offer ISKs and KFs, as well as specialist stockbrokers like Avanza or Nordnet, which are often significantly cheaper. 

It’s somewhat less convenient to have your savings in a separate place to your bank account, but this can also be a good thing if you’re the kind of person who is tempted to sell your shares or funds at the slightest sign of a downturn.

It’s relatively easy to set up an automatic investment each month from your salary account to an ISK, even if these are in different banks.

You can often open an ISK in minutes via mobile banking on your phone, although it’s a good idea to do your research first and compare fees between providers before you open one – small differences in fees can make a huge difference if you’ll be saving over an entire lifetime.

Having said that, it’s a good idea to be aware of specific rules in your home country, especially if you are still eligible to pay tax there.

In the US, for example, ISKs are very difficult to report to tax authorities, and you may be penalised for owning mutual funds over a certain amount – which is common both in ISKs and KFs.

How would the new proposal change things?

Under a new proposal, which has been co-authored by the government and the Sweden Democrats, tax on ISKs and KFs would be scrapped for any accounts where savings are less than 300,000 kronor. Currently, an ISK with 300,000 kronor saved would cost 3,258 kronor in tax in a calendar year, so it’s a sizeable saving for those with a balance above this amount.

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