Sweden’s housing market downturn worsens

The Swedish housing market is now struggling, amidst falling property demand and construction activity, coupled with an ailing economy.

During 2023, the national house price index fell by 6.31%, worse than the prior year’s decline of 3.73% and in stark contrast to y-o-y increases of 15.78% in 2021, 10.26% in 2020, and 3.9% in 2019, according to Statistics Sweden. Last year was the country’s worst showing since 1993. When adjusted for inflation, house prices declined by a huge 11.24% in 2023.

Sweden’s house price annual change

Quarter-on-quarter, nationwide house prices dropped slightly by 0.97% (-2.02% inflation-adjusted) in Q4 2023.

“It is also observed that housing prices have started to decrease from 2022 after a number of years of increasing prices for both tenant-owned apartments and single-family homes. The underlying reasons for the decreasing house prices are, above all, the high inflation and the rising mortgage interest rates,” said the Swedish Bankers’ Association in its 2023 Mortgage Market report.

By region:

  • Greater Stockholm house price index fell by 6.3% y-o-y in 2023 (-11.2% inflation-adjusted), following a decline of 5.3% in 2022 and annual increases of 16.3% in 2021 and 11.9% in 2020, based on figures released by Statistics Sweden.
  • Greater Göteborg house prices declined by a more modest 2.3% during 2023 (-7.4% inflation-adjusted), following a y-o-y fall of 5.1% in 2022 and annual rises of 17.1% in 2021 and 6.2% in 2020.
  • Greater Malmo house prices fell by 8.7% during 2023 (-13.5% inflation-adjusted), worse than the prior year’s 5.6% drop and in contrast to y-o-y increases of 18.1% in 2021 and 11.6% in 2020.

Sweden House Prices Annual Change graph

Property demand is now declining sharply, with nationwide home sales falling by 18.7% y-o-y to 45,588 units in 2023, according to Statistics Sweden. It was the lowest level of home sales recorded in recent history.

Sweden’s housing market is expected to remain subdued this year, amidst a weak economy and high interest rates.

Sweden’s economy declined slightly by 0.1% in 2023 from a year earlier, in stark contrast to y-o-y expansions of 2.8% in 2022 and 6.1% in 2021, primarily caused by a decline in private consumption and housing construction, based on figures released by the European Commission. The International Monetary Fund (IMF) estimated a bigger contraction of 0.3% last year. Accordingly, private consumption was constrained by high inflation, which eroded real disposable incomes, and the increasing burden of mortgage loans as the central bank continues to tighten monetary policy.

The IMF and the European Commission project the Swedish economy to grow by a meager 0.2% this year.

Local house price variations

During 2023, all of the eight Riksområden (National Areas) of Sweden saw falling house prices. RIKS4 South Sweden registered the biggest y-o-y price decline of 9.4% (-16.6% inflation-adjusted) in 2023, based on figures from Statistics Sweden.

It was closely followed by RIKS2 Eastern Central Sweden, which experienced a y-o-y house price fall of 9.2%, RIKS8 Upper Norrland (-8.9%), RIKS5 West Sweden (-8.5%), RIKS6 Northern Central Sweden (-8.4%), and RIKS7 Central Norrland (-8.4%). RIKS3 Småland with the islands and RIKS1 Stockholm production county also saw house price falls of 6.8% and 6.3%, respectively.

RIKS1 Stockholm production county had the most expensive housing in Sweden, with an average house price of SEK 6.69 million (EUR 592,288) in 2023. Nationwide house prices stood at an average of SEK 3.59 million (€317,759) last year.

HOUSE PRICES IN SWEDEN’S 8 RIKSOMRÅDEN (NATIONAL AREAS), 2023
National Areas Average house prices y-o-y change (%)
SEK EUR Nominal Real
RIKS1 Stockholm production county 6,686,000 592,288 -6.3 -13.7
RIKS2 Eastern Central Sweden 3,173,000 281,084 -9.2 -16.3
RIKS3 Småland with the islands 2,435,000 215,708 -6.8 -14.2
RIKS4 South Sweden 3,499,000 309,963 -9.4 -16.6
RIKS5 West Sweden 3,801,000 336,716 -8.5 -15.7
RIKS6 Northern Central Sweden 2,136,000 189,220 -8.4 -15.6
RIKS7 Central Norrland 1,937,000 171,592 -8.4 -15.6
RIKS8 Upper Norrland 2,252,000 199,496 -8.9 -16.1
Sources: Statistics Sweden, Global Property Guide

House prices remain overvalued; households still highly indebted

Despite the recent sharp decline, Swedish house prices remain worryingly high. According to the 2023 UBS Global Real Estate Bubble Index, Stockholm is now out of the bubble territory but house prices are still overvalued, as housing market imbalances remain high.

“Between 2008 and 2021, falling mortgage rates have supported demand for owner-occupied homes and led to a sharp rise in Stockholm’s real housing prices by almost 70%. The surge was much faster than that of local incomes and rents, as well as housing prices in other parts of the country,” said the UBS report. “Excessive housing valuations and a high reliance on variable-rate mortgages turned out to be a dangerous cocktail. Currently, affordability is stretched, and as a result, between mid-2022 and mid-2023, inflation-adjusted prices corrected by over 20%—more than in any other city analyzed. The market slid from bubble risk to overvalued territory.”

Swedish households are highly indebted. About 64% of households in the country own their homes. Of these, around 81% have a home loan.

“I’ve persistently time and time again said that the debt level in the household sector is just way, way too high and there will be a day of reckoning and eventually rates will go up, and now rates have gone up,” said Stefan Ingves, who headed Riksbank from 2006 to 2022. “What you see happening now is almost exactly what you would expect to see happening, and that is that households have to pay more and the interest rate sensitivity … is much higher,” Ingves added.

High-interest rates have put additional pressure on indebted households.

“Households that took out a new mortgage and amortized it spent, on average, after interest rate deductions, 18 percent of their disposable income on interest rate and amortization payments. This is an increase of approximately 7 percentage points compared to the years 2017–2021 when interest rates were lower. In 2023, every tenth household spent at least 28 percent of their disposable income on interest and amortization payments,” said the Swedish Financial Services Authority (Finansinspektionen).

During Sweden’s recent housing boom (2012-2021) house prices surged by almost 90% (70.8% inflation-adjusted). Over the past two decades, house prices have risen by a whopping 260% (178% inflation-adjusted). Because of the decline in house prices in 2022-23, the imbalances have fallen but house prices have remained overvalued.

Sweden GDP Growth vs House Price Growth graph

Brief history

Sweden experienced a great house price boom starting in the mid-1990s. The boom was set off by low interest rates, rapid economic growth, and a lack of new supply. Mortgage interest rates fell from 10%+ in 1996, to less than 5% between 2004 and 2008.

From 1996 to 2007, the Greater Stockholm house price index soared 217% (119% inflation-adjusted), while Greater Malmo rose 236% (185% inflation-adjusted), and Greater Gothenburg rose 202% (156% inflation-adjusted).

There was a pause in 2008 and 2012. But house prices soared again by 45.1% (40.7% inflation-adjusted) from 2012 to 2017. And, after falling marginally in 2018, house prices rose again by a cumulative 32.6% (25.8% inflation-adjusted) from 2019 to 2021.

The housing market slowed sharply again in the past two years, with house prices falling by 10.6% (-22.8% inflation-adjusted) from 2022 to 2023.

Sweden Average Price of Houses graph

Government market-cooling measures

Riksbank cooling measures have rapidly succeeded each other, with little impact. From June 2016, mortgage loans of over 50% of the value of the property have had to be amortized (i.e., paid back) at 1% every year, while loans worth 70%+ of the property’s value must be amortized at 2% annually.

From March 2018 any new housing loan borrowers with housing debts exceeding 4.5 times gross income have been required to amortize at least 1% in addition to the fundamental amortization requirements.

In addition, the Swedish Financial Services Authority has introduced a 25% mortgage risk weighting to tie up bank capital, thus discouraging mortgage lending.

Yet these measures had a trivial effect on the housing market, with house prices rising again after a small decline in 2018.

In April 2020 the Finansinspektionen introduced a temporary exemption from amortization payments amidst the Covid-19 pandemic – benefitting around 230,000 households. However, the said temporary exemption expired on August 31, 2021.

Then in 2022, interest rates for housing loans increased sharply, following the central bank’s key interest rate hikes in an effort to rein in inflationary pressures. This resulted in a huge decline in property demand, as well as house prices.

“Inflation continued to be high in 2023, and mortgage rates continued to rise. The Swedish economy was in a recession. The atmosphere on the housing market was cautious, and activity was low,” said Finansinspektionen in its 2023 Swedish mortgage market report.

“The new borrowers spent on average 10.8 percent of their income on interest payments after interest rate deductions. Every tenth borrower spent at least 17.5 percent of their income on interest payments. This is a clear increase compared to the years up to 2021 and even a continued increase compared to 2022. When we add amortization payments, new mortgagors on average spent almost 18 percent of their income on loan payments,” added Finansinspektionen.

Demand is plummeting

Property demand is now declining sharply, with nationwide home sales falling by 18.7% year-on-year to 45,588 units in 2023, according to Statistics Sweden. It was the lowest level of home sales recorded in recent history.

This followed an annual drop of 7% in 2022 and increases of 6.7% in 2021, 0.4% in 2020, and 2.9% in 2019.

During 2023:

  • In Greater Stockholm, home sales dropped sharply by 19.5% y-o-y to 6,909 units, following a decline of 15.2% in the prior year.
  • In Greater Göteborg, home sales plunged by 17.5% y-o-y to 3,817 units, worse than the 7.8% fall seen in 2022.
  • In Greater Malmo, home sales fell by 16.5% y-o-y to 2,788 units, following an annual contraction of 13.3% in the previous year.

RIKS5 West Sweden, RIKS2 Eastern Central Sweden, and RIKS4 South Sweden accounted for more than half of all home sales in 2023.

Sweden Home Sales graph

Foreign demand is more or less stable

Nationwide, foreigners owned 38,065 holiday homes in Sweden in 2022, almost unchanged from the previous year, according to Statistics Sweden.

Yet there are wide regional variations in foreign ownership of holiday homes as a percentage of the total stock. RIKS3 Småland with the islands had the highest percentage of foreign ownership, at 25.2%, followed by RIKS5 West Sweden, at 24.8%, and RIKS6 Northern Central Sweden, at 20.9%.

In contrast, in RIKS1 Stockholm production county, foreign ownership is just less than 1% of the stock.

FOREIGN OWNERSHIP OF HOLIDAY HOMES, 2022
National Areas Total Units Share (%)
RIKS1 Stockholm production county 236 0.6
RIKS2 Eastern Central Sweden 1,012 2.7
RIKS3 Småland with the islands 9,580 25.2
RIKS4 South Sweden 4,824 12.7
RIKS5 West Sweden 9,443 24.8
RIKS6 Northern Central Sweden 7,968 20.9
RIKS7 Central Norrland 2,493 6.5
RIKS8 Upper Norrland 2,509 6.6
Total 38,065 100.0
Source: Statistics Sweden

Norwegians accounted for the largest share of 32.5%, followed by Germans (with 28.3% share) and Danes (with 26% share).

The continued decline in the value of the Swedish Krona (SEK) against the euro in the past years made Swedish holiday homes more affordable to foreign investors. From January 2022 to September 2023, the SEK lost 12.5% of its value against the euro.

However, in the past six months, the SEK appreciated by about 5.2% to reach an average monthly exchange rate of SEK 11.253 = EUR 1 in February 2024.

Sweden Monthly Average Exchange Rate graph

Dwelling starts plunging, but completions showed mixed results

Nationwide, dwelling starts in newly constructed one- to two-dwelling buildings plunged by 52.5% y-o-y to 5,971 units in 2023 and declined by 53.6% to 20,614 units in multi-dwelling buildings, according to Statistics Sweden.

On the other hand, dwelling completions in newly constructed one- to two-dwelling buildings fell by 11.7% y-o-y to 11,262 units last year but increased by 22.5% to 50,529 units for multi-dwelling buildings.

By region:

  • In Greater Stockholm, dwelling starts in all newly constructed buildings plummeted by 50% to 6,938 units during 2023 while completions increased by 21.6% to 15,849 units.
  • In Greater Göteborg, dwelling starts in newly constructed buildings dropped by 43.9% y-o-y to 4,068 units in 2023, and completions fell by 5.7% to 7,673 units.
  • In Greater Malmo, dwelling starts plunged by 63.7% to 1,507 units during 2023 while completions rose by 20.9% to 4,801 units.
  • In Sweden excluding metropolitan areas, dwelling starts fell by 55.7% y-o-y to 14,072 units but completions increased by 15.9% to 33,468 units.

Sweden Dwellings in Newly Constructed Buildings graph

Rental yields are moderately good

Gross rental yields in Sweden stand at 5.68%, on average, in Q1 2024, up 5.29% in Q3 2023, according to research conducted by Global Property Guide in January 2024.

In major cities, in Q1 2024:

  • In Stockholm, apartments offer rental yields of 2.76% to 5.9%, with a city average of 4.53%.
  • Gothenburg’s gross rental yields are higher, ranging from 3.87% to 6.83%, with a city average of 5.16%.
  • In Malmö, gross rental yields currently range from 4.89% to 7.07%, with a city average of 5.86%.
  • In Uppsala, apartments offer good rental returns ranging from 5.47% to 7.72%, with a city average of 6.89%.

Rents continue to increase

Before the Covid-19 pandemic, in 2009-2019, rents have risen by about 20%, above the inflation, which was about 12%. However, nationwide inflation reached record highs in the past two years – climbing to an average of 8.4% in 2022 and 8.7% in 2023 – more than double the annual average increase in rents of 4.1% over the same period.

During 2023, rents for dwellings in Sweden increased by 5.2% to an average of SEK 7,223 (EUR 640) per month, following y-o-y growth of 3% in 2022, 2.4% in 2021, 2.9% in 2020, 3.4% in 2019, and 2.1% in 2018, based on figures from Statistics Sweden.

By region:

  • In Greater Stockholm, rents for dwellings were up by 4.5% y-o-y to SEK 8,131 (EUR 720) per month during 2023, following an increase of 2.9% in 2022 and 2.5% in 2021.
  • In Greater Göteborg, dwelling rents increased by 5.8% y-o-y to SEK 7,365 (EUR 652) per month, higher than the annual growth of 3.2% in 2022 and 2.3% in 2021.
  • In Greater Malmo, the average monthly rent for dwellings rose by 5.1% to SEK 8,031 (EUR 711) per month, following increases of 3.5% in the prior year and 2.3% two years earlier.

Swedish law requires that rent-setting be negotiated between tenant organizations and MHCs or private landlord organizations. Private rents are compared to social housing rents, which leads to rent conformity across tenures.

Sweden Average Dwelling Rents graph

Interest rates remain high

In February 2024, Riksbank decided to maintain its policy rate at 4.00%, following ten consecutive rate hikes since August 2019 when the policy rate was just -0.50%.

“The Riksbank´s rate increases have contributed to lower inflationary pressures and to inflation expectations being firmly anchored around the 2 percent inflation target. In November and December, inflation continued to fall, and when measured in terms of the CPIF excluding energy, it was lower than expected. Indicators point to inflationary pressures continuing to decline going forward,” said the central bank in its February 2024 Monetary Policy Report. “The Executive Board has decided to leave the repo rate unchanged at 4 percent. The Riksbank assesses that contractionary monetary policy is still considered necessary to stabilize inflation close to the target.”

As a result, mortgage interest rates have been rising sharply in the past several months. In January 2024, the average interest rate for outstanding housing loans stood at 4.05%, sharply up from 2.67% in the previous year and 1.47% two years ago.

By maturity:

  • Maturity of up to 1 year: 4.94% in January 2024, up from 3.4% in the previous year and 1.5% two years earlier
  • Maturity of 1-5 years: 2.37%, up from 1.75% in the previous year and 1.42% two years ago
  • Maturity of over 5 years: 2.25%, slightly up from 2.17% in January 2023 and 1.96% in January 2022

Sweden Interest Rates for Outstanding Housing Loans graph

For new housing loans, the average interest rate was 4.67% in January 2024, higher than the 3.58% in the previous year and 1.41% two years ago.

By initial rate fixation (IRF):

  • Floating rate and IRF of 1 year: 4.79% in January 2024, up from 3.56% in the previous year and 1.36% two years earlier
  • IRF of 1-5 years: 3.63%, slightly up from 3.77% in the previous year and 1.46% two years ago
  • IRF of 5-10 years: 2.98%, down from 3.51% in January 2023 but up from 1.72% in January 2022

“Today, the average interest rate is the highest it has been since 2008. The interest rate is expected to decrease in the near future, but according to most forecasters, it will continue to be high for the next few years rather than returning to the low level we had up to 2022,” noted Finansinspektionen in its 2023 Swedish mortgage market report.

Sweden Interest Rates for New Housing Loans graph

Mortgage market growth decelerating

Record low borrowing costs in the past two decades have caused a surge in housing loans, which grew from just 28.6% of GDP in 2001 to 56.5% of GDP in 2010, and finally to more than 70% of GDP in 2021. The Finansinspektionen (FI) noted that the continued rapid increase in mortgage lending in Sweden during the said period was mainly due to rising house prices, driven by stable income growth, a growing population, as well as historically low interest rates.

However, in the past two years, the size of the mortgage market has shrunk back to below 70% of GDP, as household’s purchasing power has been adversely impacted by rapidly rising mortgage interest rates.

“Swedish households’ loans have risen faster than household disposable income for a long time. This is partly due to low interest rates and rising housing prices,” said FI’s report. However, in the past two years, the economic and financial conditions changed dramatically.

“A home buyer today must be prepared to spend a larger share of their income on interest expenses compared to in recent years. This impacts both how many households can borrow and how much they want to borrow. But even if lending to households has stagnated, total household debt continued to be high,” says FI’s Director General Daniel Barr.

In January 2024, housing loans outstanding increased by a meager 1.2% y-o-y to EUR 361.1 billion, according to the European Central Bank (ECB), following a minuscule growth of 0.8% in 2023 and a decline of 4.2% in 2022.

In the past 20 years housing lending to households has soared by around 400%.

The three largest housing finance institutions in Sweden are owned by Swedbank (Swedbank Hypotek), Handelsbanken (Stadshypotek), and Nordea (Nordea Hypotek).

Sweden Housing Loans Outstanding graph

Swedish economy struggling, inflation easing

Sweden’s economy declined slightly by 0.1% in 2023 from a year earlier, in stark contrast to y-o-y expansions of 2.8% in 2022 and 6.1% in 2021, primarily caused by a decline in private consumption and housing construction, based on figures released by the European Commission. The International Monetary Fund (IMF) estimated a bigger contraction of 0.3% last year. Accordingly, private consumption was constrained by high inflation, which eroded real disposable incomes, and the increasing burden of mortgage loans as the central bank continued to tighten monetary policy.

“In 2023, the Swedish economy is estimated to have contracted by 0.1%, mainly due to lower private consumption and housing construction. Nominal wage growth below inflation, coupled with high household indebtedness and increased interest rate expenses, eroded real disposable incomes. A sharp drop in housing investment also contributed to the contraction in domestic demand. Exports, especially of services, supported the economy, reflecting strong competitiveness,” said the European Commission.

The Swedish economy had been growing at an annual average rate of 2.4% from 2013 to 2019 before contracting by 2.2% in 2020 due to the Covid-19 pandemic.

Sweden GDP Growth and Unemployment graph

Both the IMF and the European Commission project the Swedish economy to grow by a meager 0.2% this year.

“Economic growth is projected to remain sluggish at the beginning of 2024 and to pick up in the second half of the year. This is set to be primarily driven by an assumed bottoming out of household consumption, as the combination of falling inflation and lower interest rates supports households’ purchasing power,” noted the European Commission.

The country’s central government balance resulted in a surplus for the third year in a row. Yet, the surplus declined sharply to SEK 19 billion (EUR 1.68 billion) in 2023, from SEK 164 billion (EUR 14.53 billion) in the prior year, mainly due to lower-than-expected tax income. As a percent of GDP, the surplus was equivalent to 0.15% this year, from 1.1% of GDP in 2022. 

As a percent of GDP, Sweden’s gross public debt dropped to 31.85% of GDP in 2023, from 32.9% in 2022, 36.5% in 2021, and 39.9% in 2020. It is among the lowest in the European Union. Yet the Swedish National Debt Office expects the general government debt level to increase to 33% of GDP this year.

The unemployment rate stood at 8.5% in February 2024, unchanged from the previous month but slightly up from 8.2% in the same period last year, according to Statistics Sweden. Nationwide unemployment averaged 7.5% from 2009 to 2019 before rising to 8.3% in 2020 and 8.9% in 2021. Unemployment went back down to 7.5% in 2022 but increased slightly again to 7.7% in 2023.

In February 2024, there were about 480,000 unemployed people in Sweden, an increase of 21,000 from the previous year.

Inflationary pressures are easing. In February 2024, nationwide inflation stood at 4.5%, down from 5.4% in the previous month and 12% in the same period last year, based on figures from Statistics Sweden. Yet it remains far above the Riksbank’s 2% inflation target.

Inflation averaged just 1.3% from 2000 to 2020, before rising to 2.2% in 2021, 8.4% in 2022, and 8.7% in 2023.

Sweden Inflation Percentage graph

Sources: