Swedbank Housing Index Suggests Further Decline in Housing Prices Ahead

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Stockholm, there are indications that housing prices in Sweden have not yet reached their lowest point, despite a recent uptick in the index. After six quarters of declining values, the index rose during the third quarter, but rising mortgage interest rates and financial challenges in housing associations suggest further price drops.

According to Swedbank, which measures households’ ability to buy a home, increased from 92 to 94 in the third quarter. This implies that, on average, households currently need to allocate 32 percent of their disposable income to housing expenses. Arturo Arques, a private economist at Swedbank and the savings banks, points out that while the housing index has risen, many signs indicate that housing prices, especially for condominiums, may continue to fall. The main reasons are the ongoing increase in mortgage interest rates and significant deficits in many of the country’s housing associations.

The housing market faces a challenging outlook with the prospect of continually rising mortgage interest rates. For the Housing Index to maintain its current level of 94, housing prices need to decrease by an additional two percent, assuming a forecast of five percent mortgage interest by year-end. A more substantial drop of 14 percent in housing prices is required to reach an index level of 100, which is generally considered a threshold for relatively good purchasing power.

Despite lower housing prices and an increased supply, the number of transactions has decreased, indicating that the market is still searching for a new equilibrium price. Swedbank’s assessment is that prices are likely to drop by an additional five percent.

Arturo Arques also highlighted the financial pressures faced by small house owners due to high inflation and rising mortgage rates. He advises homeowners to make a budget and a maintenance plan, focusing on renovations necessary to maintain the property’s value, while avoiding postponing maintenance that could lead to more significant issues.

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