The Swedish housing market is slowly stabilizing, largely due to recovering property demand as interest rates begin to decline. Nevertheless, the overall economic conditions continue to be weak, limiting a more robust recovery.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

In the third quarter of 2024, the national house price index rose slightly by 1.61% as compared to a year earlier, following a meager year-on-year growth of 0.11% in the previous quarter and six consecutive quarters of price decline from Q4 2022 to Q1 2024, based on figures from Statistics Sweden. The recent housing downturn had been the country's worst showing since 1993.

When adjusted for inflation, house prices registered zero growth during the year to Q3 2024.

Quarter-on-quarter, nationwide house prices increased by 2.28% (2.96% inflation-adjusted) in Q3 2024.

"Inflation increased significantly during 2022, prompting the Riksbank to rapidly increase the policy rate to the highest level since 2008. The increased policy rate has affected the interest rate level in the economy and caused the mortgage interest rate to increase sharply," said the Swedish Bankers' Association in its Sweden Mortgage Market report published in October 2024. "In addition, energy prices have been high during the period resulting in increased heating costs. Overall, this created uncertainty in the housing market and, as a consequence, caused housing prices to cool during 2022. In 2023, housing prices stabilized at a lower level and during the first half of 2024 housing prices have seen some growth."

Sweden's house price annual change

By region:

• Greater Stockholm house price index increased by a minuscule 0.6% y-o-y in Q3 2024 (-1% inflation-adjusted), following an annual decline of 6.3% in 2023 and increases of 16.3% in 2021 and 11.9% in 2020, according to data released by Statistics Sweden.
• Greater Göteborg house prices were up by 1.1% (-0.5% inflation-adjusted) in Q3 2024 from a year earlier, following y-o-y declines of 2.3% in 2023 and 5.1% in 2022 and a strong growth of 17.1% in 2021.
• Greater Malmo house prices rose by 2% (0.4% inflation-adjusted) in Q3 2024 as compared to the same period last year, following annual declines of 8.7% in 2023 and 5.6% in 2022 and a huge increase of 18.1% in 2021.

During 2023, nationwide home sales plunged by 16.8% y-o-y to 46,641 units - the lowest level of home sales recorded in recent history. But there are signs that property demand is gradually improving again, with the total number of homes sold increasing by 6.3% year-on-year to 36,445 units in the first three quarters of 2024.

Sweden's housing market is expected to remain subdued in the medium-term, amidst a struggling economy.

The Swiss economy contracted by 0.2% in 2023 from a year earlier, in stark contrast to y-o-y expansions of 1.5% in 2022 and 5.9% in 2021, primarily caused by a decline in private consumption and housing construction, based on figures released by the International Monetary Fund (IMF). 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.

Then in Q3 2024, the economy declined by 0.1% q-o-q, following a quarterly fall of 0.3% in the previous quarter - indicating that the Swedish economy has officially entered a technical recession.

Before the latest figures were released, the IMF expected the Swedish economy to grow by a meager 0.9% this year while economic projections from the European Commission are more consecutive, at 0.3% growth.

Local house price variations

In Q3 2024, seven of the eight Riksområden (National Areas) of Sweden saw increasing house prices. RIKS8 Upper Norrland registered the biggest y-o-y price growth of 12.6% (10.82% inflation-adjusted) in Q3 2024, based on figures from Statistics Sweden.

It was followed by RIKS6 Northern Central Sweden, which experienced a y-o-y house price increase of 8.52%, RIKS3 Småland with the islands (6.42%), RIKS4 South Sweden (6.4%), and RIKS5 West Sweden (5.18%). RIKS2 Eastern Central Sweden and RIKS7 Central Norrland recorded modest to minimal house price growth of 3% and 1.78%, respectively.

Only RIKS1 Stockholm production county saw a slight house price decline of 1.69% (-3.24% inflation-adjusted) in Q3 2024 as compared to a year earlier.

Despite this, RIKS1 Stockholm production county had still the most expensive housing in Sweden, with an average house price of SEK 6.69 million (EUR575,512) in Q3 2024. Nationwide house prices stood at an average of SEK 3.69 million (EUR317,512) during the latest quarter.

Historic Perspective:

Low risk of real estate bubble but households are still highly indebted

After the recent sharp decline in Swedish house prices, there is now a low risk of a real estate bubble in Stockholm, according to the 2024 UBS Global Real Estate Bubble Index.

"Between 2009 and 2021, falling mortgage rates boosted demand for owner-occupied homes in Stockholm, causing real housing prices to rise by about 90%, outpacing local incomes and rents. Excessive housing valuations combined with high household debt and variable-rate mortgages turned out to be a dangerous mix. Rising interest rates and a weak local economy caused demand to plummet and triggered a sharp price correction," said the UBS report. "Over the last three years, real prices have fallen by almost 30%. For now, the bubble risk is low, and the correction is losing steam."

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 and there is now a low risk of a real estate bubble.

Despite this, Swedish households are highly indebted. About 65% of households in the country own their homes. Of these, around 77% have a home loan.

"The rate at which lending to households has increased has been high for a long time. However, the economic circumstances of households have changed, and mortgages have been growing slower since May 2022. Despite this, households' total indebtedness continues to be high," said the Swedish Financial Services Authority (Finansinspektionen).

Stefan Ingves, who served as Governor of Riksbank from 2006 to 2022, had previously raised concerns about the exceptionally high levels of indebtedness among Swedish households.

"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 Ingves. "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 in the past two years.

"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 Finansinspektionen.

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 by 217% (119% inflation-adjusted), while Greater Malmo rose by 236% (185% inflation-adjusted), and Greater Gothenburg rose by 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 10.8% (-23% inflation-adjusted) from 2022 to 2023.

House prices have been stabilizing gradually in the past three quarters.

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 Highlights:

Demand improving again

During 2023, nationwide home sales plunged by 16.8% to 46,641 units as compared to a year earlier, 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.

But there are signs that property demand is gradually improving again, with the total number of homes sold increasing by 6.3% year-on-year to 36,445 units in the first three quarters of 2024.

In Q1-Q3 2024:

• In Greater Stockholm, home sales increased by 12.1% y-o-y to 5,940 units, following annual declines of 19.5% in 2023 and 13.5% in 2022.
• In Greater Göteborg, home sales were up by 7% y-o-y to 3,102 units, an improvement from annual declines of 17.5% in the previous year and 6.4% two years ago.
• In Greater Malmo, home sales rose by 6.9% y-o-y to 2,294 units in the first three quarters of 2024, following annual contractions of 16.5% in 2023 and 11.8% in 2022.

RIKS5 West Sweden, RIKS2 Eastern Central Sweden, and RIKS4 South Sweden accounted for more than half of all home sales in Q1-Q3 2024.

Foreign demand is more or less stable

Nationwide, foreigners owned 38,180 holiday homes in Sweden in 2023, up by a meager 0.3% from a year earlier, following a slight decline of 0.2% in 2022, according to Statistics Sweden.

Overall, foreign ownership accounts for about 6.2% of the total holiday home stock in the country.

Yet there are wide local variations in foreign ownership of holiday homes as a percentage of the total stock. Kronoberg had the highest percentage of foreign ownership, at 37.4% during 2023, followed by Värmland at 23.9%, Jönköping at 13.6%, Blekinge at 11.1%, and Västra Götaland at 10%.

In contrast, foreign ownership is just less than 1% of the country's stock in Stockholm, Uppsala, Södermanland, Gotland, and Västmanland.

Norwegians accounted for the largest share of 32%, followed by Germans (with a 29.2% share) and Danes (with a 25.3% 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 thirteen months, the SEK has appreciated by about 3.7%, reaching an average monthly exchange rate of SEK 11.416 = EUR 1 in October 2024.

Supply Highlights:

Residential construction activity weakening

Nationwide, dwelling starts in newly constructed one- to two-dwelling buildings plunged by 49.7% y-o-y to 6,364 units in 2023 and declined by 50.4% to 21,802 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 4.3% y-o-y to 12,212 units last year but increased by 29.4% to 53,383 units for multi-dwelling buildings.

By region:

• In Greater Stockholm, dwelling starts in all newly constructed buildings plummeted by 44% to 7,604 units during 2023 while completions increased by 28.6% to 16,757 units.
• In Greater Göteborg, dwelling starts in newly constructed buildings dropped by 43.6% y-o-y to 4,194 units in 2023, and completions fell by 4.5% to 7,776 units.
• In Greater Malmo, dwelling starts plunged by 60% to 1,676 units during 2023 while completions rose by 29.3% to 5,136 units.
• In Sweden excluding metropolitan areas, dwelling starts fell by 53.2% y-o-y to 14,692 units but completions increased by 24.4% to 35,926 units.

During the first half of 2024, residential construction activity remains weak. Dwelling starts dropped by 2.3% y-o-y to 14,487 units in H1 2024 while completions plummeted by a huge 45% y-o-y to 19,025 units over the same period.

"Rising inflation and increasing interest rates from 2022 led to a slowdown in construction followed by a significant drop during 2023 and a continued slowdown in the first half of 2024," said the Swedish Bankers' Association.

"According to the forecast by the National Board of Housing, construction will decrease further in 2024 to 25,000 new dwellings," the Association added.

Rental Market:

Rental yields are moderately good

Gross rental yields in Sweden stand at 5.64%, on average, in Q3 2024, slightly down from 5.68% in Q1 2024 but higher than the 5.29% in Q3 2023, according to a research conducted by the Global Property Guide in September 2024.

In major cities, in Q3 2024:

• In Stockholm, apartments offer rental yields of 3.46% to 5.92%, with a city average of 4.38%.
• Gothenburg's gross rental yields are higher, ranging from 4.47% to 6.81%, with a city average of 5.38%.
• In Malmö, gross rental yields currently range from 4.41% to 7.29%, with a city average of 5.93%.
• In Uppsala, apartments offer good rental returns ranging from 4.64% to 8.17%, with a city average of 6.88%.

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 2024, new rent for dwellings in Sweden increased by 6.1% to an average of SEK 7,664 (EUR 662) per month, following y-o-y growth of 5.2% in 2023, 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 5.9% y-o-y to SEK 8,612 (EUR 744) per month during 2024, following increases of 4.5% in 2023, 2.9% in 2022 and 2.5% in 2021.
• In Greater Göteborg, dwelling rents increased by 6% y-o-y to SEK 7,808 (EUR 675) per month, higher than the annual growth of 5.8% in 2023, 3.2% in 2022 and 2.3% in 2021.
• In Greater Malmo, the average monthly rent for dwellings rose strongly by 7.9% to SEK 8,667 (EUR 749) per month, following increases of 5.1% in 2023, 3.5% in 2022, and 2.3% in 2021.

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.

Mortgage Market:

Interest rates for new housing loans falling, following Riksbank's key rate cuts

In October 2024, Riksbank decided to cut the policy rate by 50 basis points to 2.75%, as inflationary pressures eased and economic activity remained weak. This followed three rate cuts of 25 basis points each in May 2024, August, and October.

Sweden's mortgage loan interest rates:

"The Executive Board has therefore decided to cut the policy rate by 0.5 percentage points to 2.75 percent. If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut again at the next monetary policy meeting in December and during the first half of 2025," said Riksbank.

Prior to the recent monetary policy shift, Riksbank implemented ten consecutive rate hikes from August 2019 when the policy rate was just -0.50% to September 2023 when the key rate reached 4.0%.

As a result, interest rates for new housing loans have been gradually declining in the past several months. In September 2024, new housing loan interest rate averaged 3.82%, down from 4.66% in the same month last year but still higher than the 3.07% two years ago.

By initial rate fixation (IRF):

• Floating rate and IRF of 1 year: 4.08% in September 2024, down from 4.72% in the previous year but still up from 2.87% two years earlier.
• IRF of 1-5 years: 2.9%, sharply down from 4.45% in the previous year and 3.75% two years ago.
• IRF of 5-10 years: 2.78%, down from 3.83% in September 2023 and from 3.34% in September 2022.

Though for outstanding loans, interest rates continue to move higher. In September 2024, the average interest rate for outstanding housing loans stood at 3.94%, up from 3.67% in the previous year and 2.49% two years ago.

By maturity:

• Maturity of up to 1 year: 4.44% in September 2024, down from 4.71% in the previous year still up from 2.51% two years earlier
• Maturity of 1-5 years: 2.64%, up from 2.06% in the previous year and 1.63% two years ago
• Maturity of over 5 years: 2.27%, slightly up from 2.23% in September 2023 and 2.05% in September 2022

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 wll as historically low interest rates.

However, in the past three 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 the rapid increase in 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 an 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 September 2024, housing loans outstanding increased by a modest 3.2% y-o-y to EUR 364.02 billion, according to the European Central Bank (ECB), following a miniscule growth of 1% 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).

Socio-Economic Context:

Economic recession, increasing unemployment

Sweden's economy contracted by 0.2% in 2023 from a year earlier, in stark contrast to y-o-y expansions of 1.5% in 2022 and 5.9% in 2021, primarily caused by a decline in private consumption and housing construction, based on figures released by the International Monetary Fund (IMF). 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.

Then in Q3 2024, the economy declined by 0.1% q-o-q, following a quarterly fall of 0.3% in the previous quarter - indicating that the Swedish economy has officially entered a technical recession.

"The Swedish economy is in a mild recession, and there are as yet few clear signs of a recovery. Since the end of 2021, the Swedish economy has essentially not grown at all. According to preliminary statistics, GDP declined by 0.1 percent in the third quarter, compared with the previous quarter, and was thus weaker than in the Riksbank's forecast. Domestic demand is still subdued, at the same time as manufacturing activity appears to be weakening," said the central bank in its November 2024 monetary policy decision.

Before the latest figures were released, the IMF expects the Swedish economy to grow by a meager 0.9% this year while economic projections from the European Commission are more consecutive, at 0.3% growth.

The Swedish economy had been growing at an annual average rate of 2.4% from 2013 to 2019 before contracting by 2% in 2020 due to the adverse effects of the Covid-19 pandemic.

The country's central government balance resulted in a surplus for the third year in a row, according to the Swedish National Debt Office. Yet, the surplus declined sharply to SEK 19 billion (EUR 1.64 billion) in 2023, from SEK 164 billion (EUR 14.14 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% last year, from 1.1% of GDP in 2022.

Yet figures from the European Commission showed that Sweden recorded a small deficit equivalent to 0.6% of GDP last year. The Commission expects the country to post shortfalls of about 1.4% of GDP this year and another 0.9% of GDP in 2025.

"The general government balance recorded a slight deficit of 0.6% of GDP in 2023 chiefly on account of revenue growth slowing on the back of sluggish domestic demand," said the European Commission. "In 2024, given the usual delayed response to an economic slowdown, the deficit is projected to increase somewhat to 1.4% of GDP. The main drivers are weakening growth in tax revenue and increased expenditure on social transfers to households, in particular on index-linked pensions in the regional and municipal subsector."

As a percent of GDP, Sweden's gross public debt dropped to 31.2% of GDP in 2023, from 33.6% in 2022, 36.7% in 2021, and 40.1% in 2020. It is among the lowest in the European Union. The Swedish National Debt Office expects the general government debt level to increase slightly to 33% of GDP this year.

The labor market is weakening. The unemployment rate stood at 8.2% in September 2024, up from 7.9% in the previous month and 7.7% a year ago, according to Statistics Sweden. Nationwide unemployment averaged 7.6% from 2009 to 2019 before rising to 8.5% 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 the third quarter of 2024, there were about 459,000 unemployed people in Sweden, an increase of 41,000 from the same period last year. There were 232,000 unemployed women and 227,000 unemployed men.

"The labor market has developed somewhat weaker than expected. Unemployment has shown a rising trend since the end of 2022, and amounted to 8.5 percent in the third quarter," said Riksbank. "Together with other new information in the form of redundancy notices, recruitment plans, and job vacancies, this indicates the labor market will remain weak for the rest of the year."

Inflationary pressures continue to ease. In October 2024, the nationwide inflation rate stood at 1.6%, sharply down from 6.5% in the same period last year and 10.9% two years ago, based on figures from Statistics Sweden. It is now within the Riksbank's 2% target and the lowest inflation rate recorded in the other three years.

Inflation averaged just 1.5% from 2000 to 2020, before rising to 2.7% in 2021, 8.1% in 2022, and 5.9% in 2023.

Sources:

1. Real estate price index for one- or two-dwelling buildings for permanent living (1981=100) by region and year (Statistics Sweden): https://www.statistikdatabasen.scb.se/
2. Real estate prices and registrations of title (Statistics Sweden): https://www.scb.se/
3. The Mortgage Market in Sweden October 2024 (Swedish Bankers' Association): https://www.swedishbankers.se/
4. Just over 5.2 million dwellings in Sweden (Statistics Sweden): https://www.scb.se/
5. Interest rate puts pressure on indebted households (Swedish Financial Services Authority): https://www.fi.se/
6. The Swedish Mortgage Market 2023 (Swedish Financial Services Authority): https://www.fi.se/
7. The Swedish Mortgage Market 2020 (Swedish Financial Services Authority): https://www.fi.se/
8. Global Real Estate Bubble Index 2024 (UBS): https://www.ubs.com/
9. Just over 6 percent of holiday homes in Sweden have foreign owners (Statistics Sweden): https://www.scb.se/
10. Higher rent increase in 2024 (Statistics Sweden): https://www.scb.se/
11. Gross rental yields in Sweden: Stockholm and 3 other cities (Global Property Guide): https://www.globalpropertyguide.com/
12. Economic forecast for Sweden (European Commission): https://economy-finance.ec.europa.eu/.
13. Policy rate cut by 0.5 percentage points to 2.75 percent (Sveriges Riksbank): https://www.riksbank.se/
14. Monetary Policy Update November 2024 (Sveriges Riksbank): https://www.riksbank.se/
15. Sweden GDP Growth Rate (Trading Economics): https://tradingeconomics.com/
16. Swedish economy in recession, preliminary data shows (Reuters): https://www.reuters.com/
17. Unemployment increased during the third quarter (Statistics Sweden): https://www.scb.se/
18. Labour Force Surveys (LFS) (Statistics Sweden): https://www.scb.se/
19. IMF Executive Board Concludes 2024 Article IV Consultation with Sweden (International Monetary Fund): https://www.imf.org/
20. Sweden (International Monetary Fund): https://www.imf.org/
21. Central government surplus of SEK 19 billion in 2023 (Swedish National Debt Office): https://www.riksgalden.se/
22. Sweden sees deficit and growing debt ahead (Swedish National Debt Office): https://www.riksgalden.se/