Swedish housing rout is only halfway to trough, says Danske Bank

SWEDEN’S housing prices are only halfway through their projected slump from last year’s peak as the Riksbank is set to significantly extend its monetary tightening, according to economists at Danske Bank.

Home prices will probably fall 25 per cent from the top, compared with the earlier forecast of a 20 per cent fall, economists Michael Grahn and Therese Persson wrote in a report. That is the gloomiest forecast so far for residential property in the largest Nordic nation that has been among the frontrunners in the global housing cooldown.

Sweden has seen residential property prices decline about 12 per cent from their peak last February, on a seasonally adjusted basis, while data on Monday (Apr 3) showed the market resumed its slide in March following a brief hiatus at the start of the year. That compares with a 15 per cent fall in Canadian housing prices and a 9 per cent decline in Australia’s capital cities.

“Our view is that housing prices will stabilise over the summer once the Riksbank reaches the end of its hiking cycle, and then develop sideways for some time,” the report said. “It will probably then be a couple of years before housing prices return to the previous trend seen in 2005 to 2019.”

Danske expects Swedish policymakers to deliver a 75 basis point benchmark rate hike later this month from 3 per cent, followed by a half-point hike in June as inflation continues to exceed the forecasts of the central bank. The Riksbank has guided for a rate hike of as much as 50 basis points in April, with governor Erik Thedeen welcoming the drop in home prices as creating a more level playing field. BLOOMBERG