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.
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.
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.
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.