Sweden’s house price rises accelerating
Lalaine C. Delmendo | May 18, 2021
Sweden’s nationwide house price index surged 10.14% (9.79% inflation-adjusted) during 2020, up from a y-o-y rise of 3.9% in 2019 and a decline of 1.66% in 2018, the impact of stricter mortgage requirements having worn off, according to Statistics Sweden.
Quarter-on-quarter, house prices increased 4.02% (3.88% inflation-adjusted) in Q4 2020.
- Greater Stockholm house price index rose strongly by 11.5% y-o-y in 2020 (11.2% inflation-adjusted), a sharp improvement from the previous year’s 1.6% rise. Quarter-on-quarter, house prices increased 5.2% in Q4 2020 (5.1% inflation-adjusted).
- Greater Göteborg house prices rose by 6.3% (6% inflation-adjusted) during 2020, following a 6% increase in 2019. House prices rose by 3.7% during the latest quarter (3.6% inflation-adjusted).
- Greater Malmo house prices soared 10.7% (10.4% inflation-adjusted) in 2020 from a year earlier, more than double the 5.1% increase in 2019. Quarter-on-quarter, house prices rose by 2.6% in Q4 2020 (2.4% inflation-adjusted).
Despite the recovery in house prices, demand fell last year and residential construction activity was weak, amidst pandemic-related restrictions. The number of homes sold in one- to two-dwelling buildings fell by 5.1% to 53,444 units in 2020, according to Statistics Sweden.
Nationwide, dwelling starts in newly constructed one- to two-dwelling buildings fell by 9.4% y-o-y to 9,644 units in 2020 while starts of multi-dwelling buildings increased 7.3% to 40,728 units, according to Statistics Sweden. On the other hand, dwelling completions of one- to two-dwelling buildings increased slightly by 1% to 10,315 units but fell by 20% to 36,367 units in multi-dwelling buildings.
During Sweden’s recent housing boom (2012-2019) house prices surged by more than 48% (38.4% inflation-adjusted). Over the past two decades house prices rose by a whopping 230% (155% inflation-adjusted).
The housing market is expected to remain buoyant this year, thanks to improving economic conditions.
Sweden’s economy contracted by a modest 2.8% in 2020, far less than the 4.3% decline in the aftermath of the global financial crisis in 2009. Sweden did not impose a full lockdown, unlike most of Europe.
However, the second wave of infections that recently hit is expected to slow economic recovery this year. The European Commission projects the Swedish economy to grow by 2.7% this year and by another 4% in 2022.
Swedish house prices are worryingly high
While Stockholm moved out of bubble risk territory in 2018, house prices remain overvalued, according to the 2020 UBS Global Real Estate Bubble Index.
“Between 1993 and 2017 real prices were going up almost nonstop, a rise driven by robust population growth and increasingly attractive financing conditions. Housing affordability eventually deteriorated, and tighter amortization requirements were introduced in mid-2017,” said UBS.
“In light of the lofty housing market valuations, this move was enough to trigger a price drop of 10% within only a few quarters. However, ongoing negative interest rates and an unattractive, overregulated rental market both make homeownership still look very appealing.”
“Stockholm’s property prices have started to recover after a sharp correction. Market imbalances there are increasing again, but are still significantly lower than in 2017,” UBS noted.
The International Monetary Fund (IMF) is somewhat worried:
“Despite their recent moderation, house prices have tripled in real terms since the mid-1990s, lifting the price-to-income (PTI) ratio to almost 30 percent above its 20-year average, with Stockholm’s PTI nearly twice the national average and among the highest worldwide,” said the IMF recently.
The average debt-to-net income ratio for households with new mortgages currently stood at 388% in early-2020, down from 410% three years ago, according to the Swedish Financial Services Authority (Finansinspektionen).
The government has tried - but failed - to cool the housing market
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. As of January 2021, around 230,000 households in the mortgage portfolios of banks had been granted an exemption, which is set to expire on August 31, 2021.
History of the Swedish house-price boom
Sweden’s present house price boom started in mid-1990s. The boom was set off by low interest rates, rapid economic growth and 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% from 2012 to 2017 (40.7% inflation-adjusted). And, after falling marginally in 2018, the Swedish housing market bounced back in 2019, with house price growth of 3.9% (2.14% inflation-adjusted). Despite the pandemic, house prices surged in 2020, rising by 10.14% (9.79% inflation-adjusted).
Local house price variations
Of the eight Riksområden (National Areas), RIKS7 Central Norrland registered the biggest y-o-y price increase of 17.7% (17.3% inflation-adjusted) during 2020, followed by RIKS8 Upper Norrland (11.1%), RIKS3 Småland with the islands (9.9%), and RIKS1 Stockholm production county (9.2%).
HOUSE PRICES IN SWEDEN’S 8 RIKSOMRÅDEN (NATIONAL AREAS), 2020
|Average house prices||y-o-y change (%)|
|RIKS1 Stockholm production county||6,171,000||603,039||9.2||8.9|
|RIKS2 Eastern Central Sweden||2,902,000||283,588||8.1||7.8|
|RIKS3 Småland with the islands||2,210,000||215,964||9.9||9.5|
|RIKS4 South Sweden||3,226,000||315,250||7.9||7.5|
|RIKS5 West Sweden||3,492,000||341,243||6.3||6.0|
|RIKS6 Northern Central Sweden||1,848,000||180,589||3.1||2.7|
|RIKS7 Central Norrland||1,844,000||180,198||17.7||17.3|
|RIKS8 Upper Norrland||2,063,000||201,599||11.1||10.7|
|Sources: Statistics Sweden, Global Property Guide|
Nationwide house prices stood at an average of SEK 3,279,000 (€320,429) in 2020, up by 8.1% from a year earlier.
Demand is falling
The number of homes sold in one- to two-dwelling buildings fell by 5.1% to 53,444 units in 2020, amidst the COVID-19 pandemic, according to Statistics Sweden.
- In Greater Stockholm, home sales fell slightly by 1.7% y-o-y to 8,380 units
- In Greater Göteborg, home sales fell by 4.2% y-o-y to 4,385 units
- In Greater Malmo, home sales dropped 5% y-o-y to 3,326 units
RIKS5 West Sweden, RIKS2 Eastern Central Sweden, and RIKS4 South Sweden accounted for more than half of all sales in 2020.
Residential construction activity remains weak
Nationwide, dwelling starts in newly constructed one- to two-dwelling buildings fell by 9.4% y-o-y to 9,644 units in 2020, according to Statistics Sweden.
- In Greater Stockholm, dwelling starts in newly constructed one- to two-dwelling buildings fell by 27.7% during 2020 while completions rose by 17.5%.
- In Greater Göteborg, dwelling starts in one- to two-dwelling buildings fell by 15.3% y-o-y in 2020, and completions dropped 4.3%.
- In Greater Malmo, dwelling starts fell by 13.5% during 2020 while completions increased 5.8%.
- In Sweden excluding metropolitan areas, dwelling starts fell slightly by 2.1% and completions by 2.4%.
Rents continue to rise modestly
Every year, rent rises are negotiated between the tenants’ association, representing about 350,000 tenants, and the Stockholm property agency, representing 5,000 private rental companies. Over the past decade, rents have risen by about 20% - not far ahead of inflation, which was about 12%.
Rents for dwellings in Sweden rose by 2.9% y-o-y in 2020, to an average of SEK 6,504 (€636) per month, following growth of 3.4% in 2019, and 2.1% in both 2017 and 2018, according to Statistics Sweden.
- In Greater Stockholm, the average monthly rent for newly constructed dwellings increased 2.9% y-o-y to SEK 7,372 (€720).
- In Greater Göteborg, the average monthly rent for newly constructed dwellings increased 1.3% y-o-y to SEK 6,596 (€645).
- In Greater Malmo, the average monthly rent for newly constructed dwellings rose by 4.8% y-o-y to SEK 7,218 (€705).
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.
Interest rates remain very low
In February 2021, the Riksbank held its policy rate unchanged at zero, following a quarter point rate hike in December 2019 that effectively ended five years of negative interest rates. It is one of the lowest benchmark interest rates in the world.
As a result, mortgage interest rates remained very low. In January 2021, the average interest rate for housing loans stood at 1.58%, down from 1.65% a year earlier and 1.63% two years ago.
- The average interest rate for housing loans with a maturity of up to 1 year stood at 1.62% in January 2021, slightly down from 1.67% in January 2020 but up from 1.58% two years ago.
- For loans with maturity of over 1 year and up to 5 years, the average interest rate fell to 1.51%, from 1.59% a year earlier and 1.69% two years ago.
- For loans with maturity of over 5 years, the average interest rate fell to 2.12% in January 2021, down from 2.37% in the previous year and 2.81% two years ago.
Mortgage market continues to surge
Record low borrowing costs 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 about 70% of GDP in 2020.
“Several factors explain the increasing residential lending. One important factor is the lack of housing,” said Christian Nilsson of Swedish Bankers’ Association. “The Swedish population is growing in record numbers due to high immigration and relatively high birth rates.”
“Another factor is the dysfunctional rental markets in the growth regions due to a general rent control, which results in many years of queuing to get a rental apartment on the first-hand market,” added Nilsson.
“An important reason why Swedish households have been borrowing more has been rising house prices,”said the Finansinspektionen in its 2020 Swedish Mortgage Market report. “Despite weaker growth in prices at the end of 2018 and in 2019, house prices have risen sharply when looked at in a wider temporal perspective. Stable income growth and a growing population have increased demand for homes. Over the past five years, historically low interest rates have also decreased the cost of borrowing. This has further increased demand for homes.”
The Finansinspektionen noted that the continued rapid increase in mortgage lending in Sweden in the past two decades was mainly due to rising house prices, driven by stable income growth, a growing population, as well as historically low interest rates.
In January 2021, housing loans outstanding rose strongly by 11.7% y-o-y to €361.4 billion, according to the European Central Bank. In the past 18 years housing lending to households has soared by more than 368%.
Modest economic contraction
One of the reasons for Swden’s modest economic contraction of 2.8% in 2020 is that Sweden did not impose a full lockdown as seen in most of Europe.
However, the second wave of infections that recently hit the country is expected to slow economic recovery this year. The European Commission projects the Swedish economy to grow by 2.7% this year and by another 4% in 2022.
Even before the pandemic, the economy was already slowing. In 2019, economic growth was just 1.2%, the slowest expansion since 2013.
The Swedish crown appreciated by almost 8% against the euro over the past year to reach an average exchange rate of SEK 10.0903 = EUR 1 in February 2021, and by 20% against the US dollar to SEK 8.3443 =USD 1 over the same period.
Inflation stood at 1.4% in February 2021, according to Statistics Sweden, up from 1% in the previous year, but still below the Riksbank’s 2% inflation target.
Unemployment stood at 9.7% in February 2021, up from 9.3% the previous month and 8.2% a year earlier, according to Statistics Sweden. Nationwide unemployment averaged 7.5% from 2009 to 2019.
To cushion the adverse impact of the pandemic, the government introduced a stimulus package equivalent to about 12% of the country’s GDP last year, which includes additional resources for the health care system, a short-term work scheme, grants to companies, labor and education support, tax cuts, as well as tax deferrals and loan guarantees. As a result, the country recorded a budget deficit of around 4% of GDP in 2020, from surpluses of 0.5% of GDP in 2019, 0.8% in 2018, 1.4% in 2017, and 1% in 2016.
As percent of GDP, gross public debt was estimated to have increased to 42.6% in 2020, from 35.1% in 2019 and 38.8% in 2018, according to the Eurostat.
- Real estate prices and registrations of title (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/housing-construction-and-building/real-estate-prices-and-registrations-of-title/real-estate-prices-and-registrations-of-title/
- Housing, construction and building (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/housing-construction-and-building/
- Dwelling stock (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/housing-construction-and-building/housing-construction-and-conversion/dwelling-stock/
- UBS Global Real Estate Bubble Index 2020 (UBS): https://www.ubs.com/content/dam/static/noindex/wealth-management/ubs-global-real-estate-bubble-index-en-1509323.pdf
- Housing Market in Sweden (Unassuming Economist): https://unassumingeconomist.com/2019/03/housing-market-in-sweden-2/
- Yields are moderate in Stockholm, Sweden (Global Property Guide): https://www.globalpropertyguide.com/Europe/Sweden/Rental-Yields
- The Swedish Mortgage Market, 2020 (Finansinspektionen): https://www.fi.se/contentassets/735154da28f04b0488a83af1b7c54e0f/the-swedish-mortgage-market-2020.pdf
- The Swedish Mortgage Market, 2021 (Finansinspektionen): https://www.fi.se/en/published/reports/swedish-mortgage-reports/the-swedish-mortgage-market-2021/
- The Swedish Mortgages Market - Report September 2020 (Swedish Bankers’ Association): https://www.swedishbankers.se/en-us/the-swedish-bankers-association-in-english/statistics-publications/the-swedish-mortgages-market-report-september-2020/#
- World Economic Outlook Database, October 2020 (International Monetary Fund): https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-subjects?c=144,
- Sweden At a Glance (International Monetary Fund): https://www.imf.org/en/Countries/SWE
- Economic forecast for Sweden (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/sweden/economic-forecast-sweden_en
- Swedish govt sees milder downturn in 2020, slower growth next year (Reuters): https://www.reuters.com/article/sweden-economy-idUSKBN28Q1VZ
- Consumer Price Index (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/prices-and-consumption/consumer-price-index/consumer-price-index-cpi/
- Labour Force Surveys (LFS) (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/labour-market/labour-force-surveys/labour-force-surveys-lfs/
- Sweden - Staff Concluding Statement of the 2021 Article IV Mission (International Monetary Fund): https://www.imf.org/en/News/Articles/2021/02/01/mcs020221-sweden-staff-concluding-statement-of-the-2021-article-iv-mission
- Tough Riksbank mortgage curbs slow Swedish property bubble, despite easy money - January 04, 2017
- Swedish house prices surging! - March 20, 2016