Sweden’s property prices are facing a serious drop as the country’s former central bank governor warns of lofty household debt levels. House prices in Sweden have risen fairly reliably over the last decade. This has been buoyed by ultra-low interest rates in a system where around half of the people’s mortgages are financed with variable rates and many of the rest are on short-term fixed rates.
But now property prices are tumbling. And this downturn is not surprising given the “dysfunctional” nature of the market, according to Stefan Ingves, who headed Sweden’s Riksbank from 2006 to 2022.
During the Covid-19 pandemic, house prices across Europe continued to rise, and Sweden was no exception. Demand for property skyrocketed as working from home and a preference for domestic vacations prompted people to upsize their spaces.
On average, house prices were up as much as 30% compared to the pre-pandemic level of January 2020, according to Nordea Bank, as the Riksbank started purchasing mortgage bonds, trying to bring rates down and adding fire to an already hot housing market. But now prices are falling, dramatically.
In 2022, Sweden’s central bank undertook an aggressive interest rate hiking cycle that ricocheted through the property market. In February, the Riksbank signaled its policy rate would remain unchanged at zero, and predicted an eventual increase for the second half of 2024. But in the bank’s next monetary policy statement just three months later, the rate was raised to 0.25%.
The National Institute of Economic Research expects a further drop in the next couple of months that will settle later in the year. “We expect the prices to continue declining throughout the first half of 2023 and then a stabilization of the prices, which is based on the interest rates not moving further up. So basically once the interest rate is stabilised, we don’t expect prices to continue declining,” Brodin said. But there is downside risk to the 20% estimate, according to the chief economist of SEB, Jens Magnusson.
The dip in the market is a correction that puts Swedish property back to its pre-pandemic state, according to some economists.
