Swedish home construction set to plummet this year, Nordea says

SWEDISH home construction is likely to plummet in the wake of falling housing prices, weighing heavily on the Nordic country’s economy, Nordea Bank Abp said in an outlook report.

The housing market in Sweden has become one of the clearest examples globally of what may happen to inflated prices when interest rates rise rapidly. After falling about 15 per cent, the market appears to have stabilised somewhat in the beginning of this year, but the ripple effects are already evident in the building market as new-home construction is coming to a near standstill.

Nordea expects construction to be started on 22,500 dwellings this year, which is less than half of last year’s starts, and down 67 per cent from 2021. That is a major factor behind a forecast 1.2 per cent contraction of Sweden’s economic output in 2023, as the direct effect of lower home-construction is close to 1 percentage point, according to Nordea.

Earlier estimates for this year’s housing starts range from 25,500 expected by the Swedish Construction Federation to a forecast for 33,000, made by the Swedish National Board of Housing in December last year.

In addition to the plunge in home construction, falling housing prices also affect Swedish households’ spending, and retail sales slumped the most on record in March.

“The next step is that precautionary savings will go up, which is likely to happen later this year when households’ financial reserves and the labour market move into a weaker phase,” Nordea said. “We thus expect spending to decline further this year.” BLOOMBERG