Swedish home prices fell further in March as stubborn inflation and rising borrowing costs exacerbated the country’s housing market crunch.
Residential property prices in the largest Nordic economy fell 0.8% last month, according to data released on Monday by the state-owned mortgage lender SBAB. The drop had slowed to 0.6% in February, but most experts believe it will continue and may even exceed the 20% drop predicted.
Housing prices fell by 15% in nominal terms last year, owing to rising inflation and central bank interest rate hikes.
In Sweden, the worst housing-price slump in three decades has contributed to an increase in defaults, particularly in the construction industry, which accounts for 11% of the country’s economic output. Bankruptcies in the sector increased 14% in March, stifling investment in new homes.
Robert Boije, chief economist at SBAB, described the March drop as “surprisingly strong,” and predicted “significantly weaker development going forward if the Riksbank continues to raise the policy rate and inflation remains at high levels.”
Because of the country’s rising interest rates, Sweden’s housing market is the most vulnerable in the EU. Although 64% of Swedes own their homes outright, many have mortgages. However, because most of these are not long-term, fixed-rate mortgages, the sector is highly exposed to rising interest rates, which are now at their highest levels in more than a decade following a series of hikes by the Riksbank.
According to industry experts, unusually high electricity prices are also having a significant impact on housing prices, and the decline in the Swedish property market could last for years.
