Sweden’s housing downturn deepens, with more declines forecast

SWEDISH housing prices extended one of the world’s worst routs, which could be further fuelled by interest-rate hikes that are yet to have their full effect.

Home prices declined a seasonally adjusted 1 per cent in April, led by a drop in the value of detached houses, according to data by SBAB Bank published on Monday (May 1). That follows a 0.8 per cent decline in March.

The data comes after Sweden’s central bank last week announced a half-point rate increase to 3.5 per cent and projected a peak rate of 3.65 per cent. While most Swedish mortgage rates are fixed for only three months, it will take some time for the latest Riksbank move to fully hit borrowers. Hence, the state-owned lender expects the rout – which has rivalled those in Canada and Australia, among others – to continue as mortgage costs continue rising.

“We expect prices to continue falling during spring, early summer, especially when the latest Riksbank hike will have fully been transferred into mortgage rates,” SBAB chief economist Robert Boije said in a statement.

The housing market weakness, which has so far led to a 16 per cent average decline in the value of detached houses, according to SBAB, is weighing on the Swedish economy. It also spells trouble for the construction sector, which contributes about 11 per cent of the country’s economic output.

In the first four months of the year, the number of bankruptcies in the construction industry rose by 29 per cent, data published on Tuesday by credit reference agency UC showed. BLOOMBERG