Sweden’s house prices rising again, as market-cooling measures lose power
Lalaine C. Delmendo | May 20, 2020
Sweden’s nationwide house price index rose by 5.2% (4.2% inflation-adjusted) during the year to Q1 2020, in contrast to a y-o-y decline of 0.5% the previous year, the impact of stricter mortgage requirements having worn off, according to Statistics Sweden. During the latest quarter house prices increased 1.5% (2.4% inflation-adjusted) in Q1 2020.
- Greater Stockholm house price index rose by 5% y-o-y in Q1 2020 (3.9% inflation-adjusted), against a decline of 4.4% the previous year. Quarter-on-quarter, house prices increased 2.9% in Q1 2020 (3.8% inflation-adjusted).
- Greater Göteborg house prices rose by a modest 2.4% (1.4% inflation-adjusted) during the year to Q1 2020, against a rise of 2.6% a year earlier. House prices rose by 0.4% during the latest quarter (1.3% inflation-adjusted).
- Greater Malmo house prices increased strongly by 7.7% (6.6% inflation-adjusted) during the year to Q1 2020, an improvement from a minuscule growth of 1.1% in the prior year. Quarter-on-quarter, house prices rose by 2.3% in Q1 2020 (3.2% inflation-adjusted).
Despite the recovery in house prices there was a sharp decline in construction activity in 2019. Dwelling starts of one- to two-dwelling buildings fell by 14.3% to 9,570 units and starts of multi-dwelling buildings by 8.8% to 37,847 units, according to Statistics Sweden. Dwelling completions of one- to two-dwelling buildings fell 14.4% to 10,300 units, but completions of multi-dwelling buildings increased by 6.9% to 45,800 units.
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).
However, the outlook for the housing market is now uncertain, amidst the economic repercussions of the coronavirus outbreak.
Though Sweden did not impose a full lockdown, its economy is expected to be as badly hit as its European neighbors. According to the Riksbank, the country’s central bank, the Swedish economy is projected to contract by between 6.9% and 9.7% this year. The Swedish economy expanded by about 1.2% last year, a slowdown from the previous year’s 2.2% growth and the slowest expansion since 2013.
Swedish house prices remain overvalued
While Stockholm moved out of bubble risk territory in 2018, house prices remain overvalued, according to the 2019 UBS Global Real Estate Bubble Index.
“The introduction of tighter amortization requirements has cooled the market since then. The price level is now 10% below the peak reached two years ago,” said UBS. “However, negative interest rates, coupled with limited supply growth and an unattractive overregulated rental market, limit the downside risks of homeownership over the medium term.”
Yet Sweden’s high house prices and high household debt relative to income pose risks.
“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 International Monetary Fund.
The average debt-to-net income ratio for households with new mortgages currently stands at 398%, down from 410% a year earlier, according to the Swedish Financial Services Authority (Finansinspektionen). Likewise, the share of new borrowers with loan-to-income ratios above 450% of gross income has fallen from 15% to 8%. Despite this, it remains very high by international standards.
The government has tried - but failed - to cool the housing market
The Riksbank’s cooling measures have come in rapid succession. 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 were 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.
But all of these measures had a trivial effect on the housing market, with house prices rising again after a small decline in 2018.
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 last year, with house price growth of 3.9% (2.14% inflation-adjusted).
Local house price variations
Regionally, Greater Göteborg saw the biggest annual growth in house prices of 6% during the year to Q1 2020, to an average of SEK 4,932,000 (€ 460,937), according to Statistics Sweden.
Greater Malmö’s average house price rose by a modest 3.1% y-o-y to SEK 4,101,000 (€383,273) in Q1 2020 while Greater Stockholm’s house prices increased by 1.6% to SEK 5,884,000 (€549,909).
Of the eight Riksområden (National Areas), RIKS3 Småland with the islands registered the biggest y-o-y increase of 9.8% (8.7% inflation-adjusted) during the year to Q1 2020, followed by RIKS5 West Sweden (9.4%), RIKS8 Upper Norrland (5.8%), and RIKS6 Northern Central Sweden (5.4%).
HOUSE PRICES IN SWEDEN’S 8 RIKSOMRÅDEN (NATIONAL AREAS), Q1 2020
|Average house prices||y-o-y change (%)|
|RIKS1 Stockholm production county||5,884,000||549,909||1.6||0.6|
|RIKS2 Eastern Central Sweden||2,833,000||264,767||4.3||3.3|
|RIKS3 Småland with the islands||2,224,000||207,851||9.8||8.7|
|RIKS4 South Sweden||3,099,000||289,627||4.4||3.4|
|RIKS5 West Sweden||3,596,000||336,076||9.4||8.3|
|RIKS6 Northern Central Sweden||1,899,000||177,477||5.4||4.3|
|RIKS7 Central Norrland||1,590,000||148,599||-1.9||-2.8|
|RIKS8 Upper Norrland||2,067,000||193,178||5.8||4.8|
|Sources: Statistics Sweden, Global Property Guide|
RIKS1 Stockholm production county has the most expensive housing in Sweden with an average dwelling price of SEK 5,884,000 (€549,909) in Q1 2020.
Nationwide house prices stood at an average of SEK 3,323,000 (€310,562) in Q1 2020, up by 7.1% from a year earlier.
Demand is gradually improving
The number of homes sold in one- to two-dwelling buildings rose by 2.8% to 56,267 units in 2019, according to Statistics Sweden.
- In Greater Stockholm, home sales increased 2.5% y-o-y to 8,522 units
- In Greater Göteborg, home sales rose by 1.5% y-o-y to 4,576 units
- In Greater Malmo, home sales increased slightly by 0.3% y-o-y to 3,499 units
RIKS5 West Sweden, RIKS2 Eastern Central Sweden, and RIKS4 South Sweden accounted for more than half of all sales in 2019.
Residential construction activity remains weak
Most regions, except Greater Stockholm, experienced falling construction activity during 2019:
- In Greater Stockholm, dwelling starts in newly constructed one- to two-dwelling buildings rose by 4.1% and by a minuscule 0.6% for multi-dwelling buildings
- In Greater Göteborg, dwelling starts fell by 10.3% y-o-y in one- to two-dwelling buildings, but increased 4% in multi-dwelling buildings.
- In Greater Malmo, dwelling starts plunged by 38% in newly constructed one- to two-dwelling buildings and by 35.3% in multi-dwelling buildings
- In Sweden excluding metropolitan areas, dwelling starts plummeted by 16.2% y-o-y in one- to two-dwelling buildings and by 10.4% in multi-dwelling buildings
Rents continue to rise modestly
Rents for dwellings in Sweden rose by 3.4% in 2019, to an average of SEK 6,320 (€589) per month, following growth of 2.1% in both 2016 and 2017, according to Statistics Sweden.
- In Greater Stockholm, the average monthly rent for newly constructed dwellings increased 3.7% y-o-y to SEK 7,161 (€668)
- In Greater Göteborg, the average monthly rent for newly constructed dwellings increased 4.1% y-o-y to SEK 6,512 (€607)
- In Greater Malmo, the average monthly rent for newly constructed dwellings rose by 2% y-o-y to SEK 6,885 (€642)
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.
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 almost 20% - not far ahead of inflation, which was about 14%.
Interest rates remain very low
In April 2020, 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 February 2020, the average interest rate for housing loans stood at 1.67%, almost unchanged from 1.66% a year earlier and 1.67% two years ago.
- The average interest rate for housing loans with a maturity of up to 1 year stood at 1.7% in February 2020, slightly up from 1.63% in February 2019 and 1.59% two years ago.
- For loans with maturity of over 1 year and up to 5 years, the average interest rate fell to 1.59%, from 1.68% a year earlier and 1.78% two years ago.
- For loans with maturity of over 5 years, the average interest rate fell to 2.36% in February 2020, down from 2.79% in the previous year and 3.14% 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 68.7% of GDP in 2019.
"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.
In February 2020, housing loans outstanding rose by 3.3% y-o-y to €324.7 billion, according to the European Central Bank. In the past 18 years housing lending to households has soared by more than 320%.
Economy to contract sharply, unemployment to rise
Though Sweden did not impose a full lockdown as seen in most of Europe, the economy is expected to be just as badly hit as its European neighbors.
The Riksbank, Sweden’s central bank, expects the economy to contract by between 6.9% and by 9.7% this year, depending on how long the spread of the virus continues - the worst downturn since 1940.
“In both scenarios, production falls sharply to begin with, and more than during the financial crisis,” said the Riksbank.
The Swedish economy expanded by about 1.2% last year, a slowdown from the prior year’s 2.2% growth and the slowest expansion since 2013.
The Swedish crown continues to fall against the euro. It has fallen about 15.5% over the past four years, reaching SEK 10.8993 = EUR 1 in April 2020. The crown also lost about 15.7% of its value against the US dollar in the past two years.
Inflation slowed sharply to 0.6% in March 2020, the lowest level in more than four years, according to Statistics Sweden. Inflation is likely to drop to zero, far from the Riksbank’s 2% target.
Unemployment stood at 7.1% in March 2020, down from 7.7% in the previous month and 6.1% a year earlier, according to Statistics Sweden. However the jobless rate is projected to rise to between 8.8% and 10.1% for the full year, according to the Riksbank.
The Swedish central government’s finances have remained healthy, recording a budget surplus of SEK 112 billion (€10.5 billion) in 2019, according to the Swedish National Debt Office. The surplus was equivalent to 0.5% of GDP last year, from surpluses of 0.8% in 2018, 1.4% in 2017, 1% in 2016, 0.2% in 2015 and a deficit of 1.6% in 2014.
As percent of GDP, gross public debt was estimated to have fallen to 35.1% in 2019, down from 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/
- UBS Global Real Estate Bubble Index 2019 (UBS): https://www.ubs.com/content/dam/static/emailer/2019/sept/BR-108576/global-real-estate-bubble-index-2019-global-version.pdf
- Housing market in Sweden (The Unassuming Economist): https://unassumingeconomist.com/2019/03/housing-market-in-sweden-2/
- The Swedish Mortgage Market (Swedish Financial Services Authority): https://www.fi.se/contentassets/2035e995c0064717ac47665a6117b1ea/bolan-2019-engn2.pdf
- The Swedish Mortgages Market - Report September 2019 (Swedish Bankers’ Association): https://www.swedishbankers.se/en-us/the-swedish-bankers-association-in-english/statistics-publications/the-swedish-mortgages-market-report-september-2019/#
- World Economic Outlook Database, April 2020 (International Monetary Fund): https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/index.aspx
- 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/
- New construction of residential buildings (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/housing-construction-and-building/housing-construction-and-conversion/new-construction-of-residential-buildings/
- Swedish central bank holds interest rates (Gulf Times): https://www.gulf-times.com/story/661904/Swedish-central-bank-holds-interest-rates
- Swedish central bank seen keeping rate steady, may expand other support - Reuters poll (Reuters): https://uk.reuters.com/article/uk-sweden-cenbank-poll/swedish-central-bank-seen-keeping-rate-steady-may-expand-other-support-reuters-poll-idUKKCN2291I0
- Monetary policy April 2020: The Riksbank is supporting an economy in crisis (Sveriges Riksbank): https://www.riksbank.se/en-gb/press-and-published/notices-and-press-releases/press-releases/2020/monetary-policy-april-2020--the-riksbank-is-supporting-an-economy--in-crisis/
- Sweden had no lockdown but its economy is expected to suffer just as badly as its European neighbors (CNBC): https://www.cnbc.com/2020/04/30/coronavirus-sweden-economy-to-contract-as-severely-as-the-rest-of-europe.html
- Consumer Price Index (CPI) (Statistics Sweden): https://www.scb.se/en/finding-statistics/statistics-by-subject-area/prices-and-consumption/consumer-price-index/consumer-price-index-cpi/
- Sweden Unemployment Rate (Trading Economics): https://tradingeconomics.com/sweden/unemployment-rate
- Central government surplus of SEK 112 billion in 2019 (Global News Wire): https://www.globenewswire.com/news-release/2020/01/10/1968813/0/en/Central-government-surplus-of-SEK-112-billion-in-2019.html
- Statistics on central government borrowing (Swedish National Debt Office): https://www.riksgalden.se/en/statistics/statistics-on-central-government-borrowing/
- Tough Riksbank mortgage curbs slow Swedish property bubble, despite easy money - January 04, 2017
- Swedish house prices surging! - March 20, 2016