Swedish housing bubble starts to deflate as realtors sound alarm

SWEDEN'S inflated housing market is teetering on the brink of a correction as price expectations turn south and buyers withdraw from a sector that hit record heights last year.

Against a backdrop of plummeting share prices and a new era of interest rates hikes, the Swedish market is seeing "a clear shift" in favour of buyers in recent weeks, according to a national survey of real-estate brokers at Fastighetsbyran, Sweden's largest, published on Thursday (Jun 16).

The changing fortunes have been so dramatic that it "can almost be likened to the reaction after the fall of Lehman Brothers at the start of the global financial crisis", Fastighetsbyran's chief executive, Johan Engstrom, said in emailed comments. Many home buyers "choose to wait", not knowing what to expect from the market now or in the future, he said.

The risks stemming from a slowdown are exacerbated by a high level of indebtedness in Sweden, built up during a decade-long housing boom. It's a scenario the country's financial watchdog and central bank have long fretted over with Swedes' debt running at 200 per cent of household income, a level clearly exceeding any from the Group of Seven economies.

Tightening financial conditions are set to put a further damper on the market, with the Riksbank already having delivered a rate increase to 0.25 per cent from zero in April and forecasts for more hikes being revised almost daily.

The developments mark a far cry from last year when house prices soared to the highest level ever as a large number of Swedes made use of unprecedented central-bank stimulus to upgrade into bigger homes. The rally even prompted one prominent asset manager to warn the market had been gripped by hysteria.

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The gloomy prognosis is increasingly being reflected in the data. On Monday, a closely watched indicator of Swedish home prices tumbled the most since the onset of the pandemic. The proportion of households expecting a drop in prices totalled 47 per cent, marking an increase of 23 percentage points from the previous month, according to the survey by SEB AB.

With sellers and buyers unable to agree on deals, "there will likely be price weakness in many places over the coming months", Fastighetsbyran's chief executive said. It's a view that is already feeding into the country's biggest market, Stockholm.

In May, apartment prices in the greater Stockholm area fell by 2 per cent from the prior month, with house prices dropping 1 per cent, according to data compiled by Svensk Maklarstatistik. The Swedish capital "often takes the lead in changing market conditions, both upwards and down", said Per-Arne Sandegren from the group responsible for compiling the data.

For Pia-Lotta Svensson, a realtor with a branch of Fastighetsbyran in Stockholm, there are now clear signs that the transaction market is slowing down. She says current prices on her patch of Sodermalm - a once bohemian but now affluent suburb of the capital - would have been down as much as 10 per cent if sellers would have accepted what buyers offered to pay.

"Something happened after the first Riksbank rate increase," she said in an interview. "Then came the media reports about inflation and at the same time supply doubled in a week." BLOOMBERG