Swedish Real Estate Hotter Than Ever

Swedish house prices soared to the highest level ever recorded, as a growing number of people make use of unprecedented central bank stimulus to upgrade into bigger homes. “From a credit perspective, one can only conclude that the market has been gripped by hysteria,

BY Realty Plus
Published - Saturday, 06 Mar, 2021

Swedish house prices soared to the highest level ever recorded, as a growing number of people make use of unprecedented central bank stimulus to upgrade into bigger homes. “From a credit perspective, one can only conclude that the market has been gripped by hysteria, which is connected to central banks pumping money into the system,” said Carl Johan Lagercrantz, a portfolio manager at Strand Kapitalforvaltning AB in Stockholm. Houses cost 15% more in February, on average, than a year earlier, while apartments were up 6%, according to data published on 5th March by Svensk Maklarstatistik. Both gauges are now at record highs. The Riksbank is trying to balance its stimulus efforts to support demand during the pandemic without over-juicing the property market. But with the bank’s quantitative easing program now set to suck up large quantities of the covered bonds that back mortgages, Sweden’s housing market is likely to get even hotter. Meanwhile, funding costs are falling in Sweden’s corporate bond market, which is heavily exposed toward the real estate sector. The Riksbank’s QE program has also played a role here, with purchases of corporate bonds contributing to narrower spreads. More than half the Riksbank’s 5.5 billion-krona ($646 million) portfolio of company debt is held in property bonds. Alexander Onica, a portfolio manager at Skandia, says the difference between now and previous rounds of monetary stimulus is that the government is also pumping record amounts of money into the economy. “I think that can create more inflation than QE was intended to do,” he said. And until three weeks ago, everybody thought interest rates couldn’t go up. Suddenly, it turns out that rates can certainly rise.”