THE plunge in the Swedish housing market deepened last month to most since the financial crisis, with the prices of single-family homes coming under growing pressure as higher energy costs deter buyers.

The largest Nordic property market that was one of the hottest during the pandemic is now among the bellwethers for the global housing cooldown amid central banks’ aggressive interest rate-increases seeking to tackle soaring consumer prices.

The decline in home costs from the March peak reached 11.2 per cent last month, the biggest drop since the global financial crisis when prices retreated 12.6 per cent in the space of eight months.

The HOX Sweden housing-price index fell for the sixth month, retreating by 2.8 per cent in September from August, according to Valueguard, which compiles the data.

“The uncertainty regarding how high the mortgage rates will rise at the same time as there are clear signs that the economy is slowing, which eventually will also impact the labour market, is clearly having a dampening effect on the sentiment among potential home buyers,” Swedbank’s analyst Maria Wallin Fredholm said in a note to clients. 

She added that there’s “a clear downside risk” to the bank’s projection that the price decline will total about 15 per cent, on seasonally adjusted terms, as the forecasts for mortgage rates have been raised “a lot” during the autumn.

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Riksbank governor Stefan Ingves said on Thursday (Oct 20) at a parliamentary hearing that the central bank will do what is necessary to bring inflation back to its 2 per cent target, even if it leads to “accidents” in the property sector. His deputy Per Jansson said at the same hearing the policy makers will closely follow developments in housing.

“I would be surprised if there isn’t any accident, somewhere, as rates increase,” Ingves said. “We have to live with that, given that the inflation target is what it is.”

The Riksbank last month forecast a peak-to-trough fall of 18 per cent. The slide is precipitated by inflation, which hit another three-decade high of 9.7 per cent in September despite the Swedish central bank’s record-large hike in borrowing costs.

“Above all, it’s the price of detached houses that is the focus of the correction at the moment,” Henrik Freudenthal, a spokesman with broker Svensk Fastighetsformedling, said in an e-mailed comment. “It’s of course affected by concerns about operating expenses with the expected high cost of electricity this winter.”

Prices of detached houses, which gained the most during the Covid-19 crisis, dropped 3.3 per cent in September, while apartment prices declined 1.9 per cent. In the first half of October, apartment prices continued to slide in Stockholm and Gothenburg, the second-largest city.

Looking at the data in seasonally adjusted terms, the housing market overall is now faring worse than during the global financial crisis, Nordea Bank analyst Gustav Helgesson said.

Sweden’s decline compares with a 12.6 per cent plunge from the peak in New Zealand and an almost 9 per cent fall in Canada. Danske Bank said earlier this month it doesn’t expect a Swedish housing crash, projecting home prices to slide “another 10 per cent” back to levels of summer 2020. BLOOMBERG