Swedish home buyers cancel bookings on new houses at record rate

SWEDISH households are increasingly pulling out of reservations to buy new-build homes as the housing market has cooled rapidly and demand for new developments dwindles.

About 65 per cent of contracts for planned new dwellings were cancelled in the past six months by buyers choosing to take the cost rather than follow through on purchases in a slumping market, according to data published by state-owned lender SBAB on Friday (Sep 1). That’s the highest share since at least 2014.

While bookings can often be cancelled at relatively small costs, the development is indicative of a sharp decrease in demand for new homes and could presage a further drop in construction activity, which has been severely suppressed by lower housing prices, declining purchasing power and higher construction costs.

“The situation for sales and bookings of new homes is disastrous,” SBAB chief economist Robert Boije said. “Sales volumes are currently at a fourth or fifth of the level we saw only a year or two ago.”

The number of housing starts in Sweden plunged by 57 per cent in the first half from the year ago period, according to official preliminary data. Boije said even those figures may prove overly optimistic as the statistics agency uses historic data to compensate for a lag in reporting.

Recent estimates indicate that construction of some 25,000 housing units could be started this year, which would be less than half of the number of homes that need to be built every year to keep up with demand. The dire situation has led the construction industry to call on government intervention to prop up demand and support builders who are struggling to stay afloat.

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“My guess is that we only have seen the beginning of the crisis in the residential construction sector, and there will be a steady stream of bankruptcies in the coming year,” Boije said. BLOOMBERG