Swedish single-family house prices fall 5% in Q4 2022

STOCKHOLM: Swedish house prices fell 5% in the fourth quarter last year compared with the previous three months as a downturn in real estate prices deepened on a cost-of-living crunch for heavily indebted households, data showed on Thursday.

Prices of single-family homes have tumbled this year on soaring inflation and repeated big rate hikes by the Swedish Central Bank, breaking a decades-long boom in real estate prices that jacked up household debts to among the highest levels in Europe.

With inflation running at 30-year-highs and mortgage costs soaring, households are seen coming under increasing pressure, dampening consumer spending, pushing down residential construction and crimping economic growth.

“There are reasons to be concerned over the housing market,” Nordea Chief Analyst Torbjorn Isaksson said.

“Not only have the interest rate hikes been substantial, they were unexpected. It’s a huge challenge and unfortunately I think housing prices have further to fall.”

Single-family home prices fell 2% compared to the corresponding period in 2021, the SCB statistics office data showed.

Nordea expects house prices to fall 20% from a record high in early 2022 and only bottom out around mid-year. It sees Swedish GDP contracting 2% in 2023 and Isaksson said the housing market represented a downside risk for the labour market and wider economy.

The Riksbank kept interest rates at zero or lower for close to eight years before abruptly changing course last year, hiking the benchmark rate four times to 2.50%.

The Riksbank has repeatedly warned of what it calls a “dysfunctional” housing market in Sweden.

Generous tax breaks on interest payments, lax rules on borrowing combined with a chronic housing shortage and low interest rates saw house prices rise almost 400% in last three decades.

While households have fairly substantial financial buffers in broad terms, many have floating-rate mortgages which means any interest rate rise quickly translates into higher costs to service their debts.