SWEDISH home prices halted a slide that’s lasted for almost a year even as one of the world’s worst-hit housing markets still faces a further climb in borrowing costs.

The news confirms tentative evidence that the residential property market in the largest Nordic nation is beginning to thaw after about 15 per cent of home values has been wiped out in the country’s most severe housing slump in three decades.

Still, sales volumes are down and with economists raising their forecasts for the Riksbank’s key interest rate, there may be more room for the decline that’s pegged to reach 20 per cent from the peak by most forecasters, including the central bank.

Apartment prices rose 1 per cent in February compared with the average from the prior three-month period, used to smooth out volatility in the data, according to figures published by realtor organisation Svensk Maklarstatistik on Wednesday (Mar 8). That’s the first increase since March last year. Prices for single family homes were unchanged after declining for the previous eight months.

“It is not unusual for the year to begin with gains, and it remains to be seen if we have come close to a more balanced housing market,” Per-Arne Sandegren, chief analyst at Svensk Maklarstatistik, said in the statement. Sales volumes for flats and detached houses fell by a quarter and by one fifth, respectively, from a year earlier.

The data follows remarks by Riksbank governor Erik Thedeen downplaying the risks of a housing crash and reiterating the policymakers won’t be deterred from further monetary tightening. Svenska Handelsbanken earlier this week boosted its expectations for rates, saying the Swedish central bank is likely to take its key rate to 4.25 per cent from 3 per cent now after core inflation reached a three-decade high.

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The rout afflicting Sweden’s real estate market will translate into a 20 per cent drop in the volume of commercial property deals in 2023, according to services company Newsec Property Management.

Sweden has already seen home prices slump 15 per cent from their peak amid soaring inflation and an aggressive round of interest rates hikes from the Riksbank. That continues to weigh on the commercial segment where Newsec expects transactions to fall to 175 billion kronor (S$22 billion) this year or less than half of the volume from 2021.

“The inability to agree on a new price level is based on the uncertainty about the inflation outlook and when the rate hikes will end,” said Max Barclay, deputy chief executive officer at Newsec, in an interview.

He also noted that there have been “hardly any deals at all” for rental properties in unattractive locations, but centrally located offices have seen little or no price changes.  

In a separate note by adviser Colliers Research, monthly deal volumes in the Nordics suffered a 74 per cent drop in February compared to a year ago, marking their lowest level since 2014. BLOOMBERG