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PROPERTY

Will Swedish housing prices bottom out in early 2023?

According to three experts interviewed by the TT newswire, the worst of the downturn in the Swedish housing market may now be over. But we still shouldn’t expect any major price increases.

Published: 27 December 2022 16:54 CET
Updated: 8 January 2023 08:25 CET
Will Swedish housing prices bottom out in early 2023?
Detached houses (villor) in Enskede, Stockholm. Photo: Fredrik Sandberg/TT

Jonas Rosén, CEO of the Mäklarsamfundet, the Association of Swedish real estate agents, said that if inflation stays high, and Sweden’s Riksbank is forced to raise rates more rapidly and higher than projected, that could mean further price falls. 

“If inflation does not subside and we see further interest rate increases, we will see a tough 2023,” he told TT.  

But he also argued that there was a chance of an upswing in the market by the end of the year.

“We get new jobs, get divorced and move. We are starting to see a tendency where things can change quite quickly. I don’t think this is a housing market bubble bursting, but more a return to normal levels.”

Sweden’s house prices rose to rapidly in 2021 and the start of 2022, but since July 2022, the cost of housing has been on a steady downward trajectory. House prices in Sweden have contracted 15 percent in real terms from their 2022 peak. 

Hans Flink, sales and business development manager at Swedish brokerage statistics, told TT that Sweden’s housing market was still in a better state than those of many other western countries.

“In Sweden, we have been spared the bubbles a bit as we do not have owner-occupied apartments where you buy and own 10 to 20 apartments that you rent out in good years and then have to sell in worse years. We have high price levels, but if you look at, for example, London, it is still very cheap in Sweden,” he said. 

Flink didn’t think property prices would rise in 2023 but predicted more stability in the year to come. “We are now seeing prices start to level off.”

He warned that if severe unemployment continued in the new year, households could become desperate and sell their homes at any price. 

Erik Holmberg, an analyst at the property site Hemnet disagreed, however. “We can cope with higher unemployment. A higher unemployment rate is also a sign that a higher interest rate has to some extent ‘succeeded’, and we will as a result get a lower interest rate.”

He said that 2021 saw an increased demand for more living space due to the pandemic, but didn’t see such an increase in house prices as to count as a housing bubble.

“It is about changing preferences over a period of time. For it to be a housing bubble, there must be some form of speculation or similar,” he said.

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MONEY

Swedish central bank: Fewer risks to financial system but future still uncertain

Twice a year, Sweden’s central bank, the Riksbank, presents its overall assessment of risks and threats to the country’s financial system.

Published: 29 May 2024 15:31 CEST
Swedish central bank: Fewer risks to financial system but future still uncertain

According to the most recent report, the bank states that near-term risks have declined, although there is still a considerable degree of uncertainty.

Financial conditions are better than they have been in recent years, due to lower inflation and expected interest rate cuts, the bank says. Having said that, policy rates could still remain at a relatively high level for a long time, which would increase the amount of pressure on the financial system.

The geopolitical situation also has a role to play – instability here increases the risk of cyberattacks which could damage the economy.

“Geopolitical risks remain high due to Russia’s ongoing invasion of Ukraine and the conflict in the Middle East,” the bank writes.

“This contributes to increased uncertainty about, for example, how world market prices for commodities and transport costs will develop. Further escalation of these conflicts could therefore lead to negative effects on the global real economy and increased risk premiums in financial markets.”

Swedish household debt is also high compared to many other countries, and the popularity of variable-rate mortgages means that the impact of high interest rates on Swedish households has been greater than elsewhere. This has affected household consumption considerably.

The bank argues therefore that structural reforms are needed to address what it describes as “fundamental problems in the housing market”.

It also identified consumer loans as a particular issue for many households struggling with their personal finances, as the number of households applying for debt restructuring increased significantly last year.

Here, the bank says, consumer credit banks have a significant market share and may not be carrying out adequate credit assessments for some loans.

This, the Riksbank states, could be improved by introducing a register of all borrowers’ loans to make credit assessments more transparent.

Another area of the economy heavily affected by high interest rates, the bank writes, is the property sector.

Again, the situation in the short term has improved for property companies, as interest rates and inflation have both dropped, but there are a lot of property companies which have not yet renewed their bank loans or bonds since rates first started going up, so their financing costs will rise.

In addition to this, the bank argues that Sweden’s financial structure needs to be modernised in line with the “structural transformation” taking place in Sweden and in the rest of Europe, underlining a need for a new and secure payment infrastructure.

The current company which manages retail payments in Sweden, Bankgirot, has been tasked by its owner banks to develop this new infrastructure, which provides another level of risk, as it must ensure that the current system runs smoothly during the transition to the new system.

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