Sweden's Residential Property Market Analysis 2024

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

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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:

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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:

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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.