Sweden’s housing market rout deepens in showcase for world

SWEDEN’S home-price decline accelerated in October, as the Nordic country gripped by the most severe housing slump in three decades shows what may lie ahead for many other developed economies.

One of the pacesetters for a global housing downturn fuelled by soaring inflation and central bank moves to curb price increases, Sweden has now seen home prices drop by about 14 per cent from a peak earlier this year, according to Valueguard, which compiles the data. Prices have slid for seven straight months, as households are being squeezed by the rising cost of living.

The slump is unusual in a country where previous corrections have been shallow and short-lived, and many young home buyers have never experienced a housing market crash.

While housing markets are cooling across the world with fewer transactions taking place, price declines have yet to begin in a number of countries. Home prices in Canada are now down 10 per cent from the peak. In addition to Sweden, peak-to-trough declines of as much as 20 per cent are forecast for countries including the US, the UK and New Zealand.

“A lot of homes are being sold at levels around the asking price, and bidding wars are rare,” Marcus Svanberg, chief executive of Lansforsakringar Fastighetsformedling, a realtor, said in a statement. “We don’t expect to see a real recovery until spring next year at the earliest.”

In October, the HOX Sweden housing-price index decreased 3 per cent from the previous month, the steepest drop since June, Valueguard said on Monday (Nov 21).

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Declines are led by detached houses, which are particularly vulnerable as electricity prices soar. A report published last week by realtor organisation Maklarstatistik showed that the price drop is twice as large in southern electricity zones, which suffer from a deficit and high rates, than in the northern end of the country enjoying an abundance of hydroelectric power.

Most forecasters expect the decline to continue, and the current trajectory indicates that the outsized gains in housing prices achieved during the pandemic could be erased by early next year.  

The latest data comes as the Swedish central bank is getting ready to announce its next move in the battle to tackle soaring inflation. The bank is widely expected to increase its policy rate by 75 basis points at a meeting on Nov 23, following a full percentage-point hike in September. The Riksbank will communicate its decision on Nov 24.

Increased borrowing costs are also pressuring the finances of commercial real estate owners, many of whom are facing large bond maturities in the coming years. The Riksbank has singled out the sector as the largest threat to Sweden’s financial stability and urged banks to be cautious when considering cash handouts to shareholders, saying that the risk of large credit losses has increased. BLOOMBERG