Stockholm housing slump set to deepen, state mortgage bank warns

[STOCKHOLM]

Home prices in the capital have already slumped about 9 per cent over the past three months, but probably have further to drop, according to the state-owned mortgage bank, SBAB.

The mortgage market in the Swedish capital has reached a tipping point triggered by a sudden increase in supply. At the same time, the prospect of stricter mortgage rules will shut a significant portion of potential buyers out of the market, according to SBAB, which is the country's fifth-largest mortgage lender.

"The aggregated price data for Sweden as a whole may not look so dramatic, but there are things happening in central Stockholm and in cities such as Uppsala and Orebro where there is an extra large supply of newly built apartments," SBAB Chief Executive Officer Klas Danielsson said in an interview. "Prices in Stockholm city are now down about 10-15 per cent, and may well drop another 10 to 15 percent." Nationally, Swedish property prices have dropped 7.3 per cent over the past three months, according to the Nasdaq OMX Valueguard-KTH Housing Index.

After years of housing shortages and surging prices, the largest Nordic economy's property market is now cooling fast. The market correction is biggest in the priciest corners of Stockholm, where supply is outstripping demand. A stricter amortisation requirement, due to come into force in March, and nervousness among buyers are also driving down prices.

The Swedish Financial Supervisory Authority argues that stricter mortgage rules are needed to tame rising household debt, which it says poses a threat to financial stability. The regulator is supported in that view by SBAB's owner, the government.  While the regulator estimates that 14 per cent of new mortgage customers will be affected by the measure, Mr Danielsson says the watchdog could be underestimating the measure's effect.

He says he's "extra worried about the new amortisation requirement and that the impact will be somewhat bigger than others think." SBAB has analysed the potential impact on new customers to find out how many would be affected by the requirement. According to its calculations, 10-15 per cent of them might not even be able to borrow.

"Some may think that 10-15 per cent is not that much, but that's the wrong way to see it," he said. "If 10 per cent is removed from the demand side, it's quite a lot. It can have major effects in the areas where supply is too high." According to the CEO, the measure is ill-timed because banks have already tightened lending criteria, the market is cooling down and the full impact of previous measures haven't yet been fully evaluated. Rather than detailed measures, politicians should focus on tax and rent regulation to fix the underlying problems in the housing market, he said.

While SBAB expects further declines, other analysts say the worst may have passed.

Andreas Wallstrom, an analyst at Nordea Bank AB, said on Dec. 14 that while home prices plunged last month, "November is history and recent statistics are rather encouraging." According to Nordea, prices have levelled out since mid-November and up until the first week of December, with averages per square meter even rising somewhat in both Stockholm and the country as a whole. Nordea expects prices to be "relatively stable" in coming months.

But Mr Danielsson says he's braced for "further price declines and some unpleasantness in the market, especially in selected areas."

BLOOMBERG