Stockholm’s residents have been saying for years that house prices in the Swedish capital are far too high. Now, buyers are signaling they’ve had enough.
After rising 17 percent over the past year, prices in central Stockholm fell 1 percent in the three months through December (see chart). In Soedermalm -- the hip neighborhood known from Stieg Larsson’s “The Girl With the Dragon Tattoo” -- the average place costs 2 percent less, while prices are also down in some of the city’s most fashionable corners, including Kungsholmen, Vasastan and Norrmalm.
Has the market finally reached its tipping point?
“While it’s not the entire explanation, surely a lot of people believe that prices have risen too much,” said Jens Magnusson, an economist at SEB. “It could partly be about psychology, that it doesn’t feel good to take the big loans required, but also about reality,” namely of reaching one’s limit at the bank.
Though the central bank has long warned that the housing market was looking overheated, the average mortgage holder is likely to view the latest data with dismay. The notion that house prices could only go up helped fuel debt growth in Scandinavia’s largest economy, with households now owing creditors about 180 percent of their disposable incomes.
“If you’re convinced that the property deal you’re about to do will be profitable, you’ll be prepared to enter with a lot of money and big loans,” Magnusson said. “If you’re less sure, you don’t want to go in with as much money and will be prepared to pay less for the same object.” The upshot is that household expectations “become self-fulfilling and the more people who believe in falling prices, the more likely it is that that is what will happen.”
In January, SEB’s housing price indicator fell for a fourth consecutive month, reaching its lowest level since mid-2013. The percentage of people who expect prices to continue rising over the coming year fell to 61 percent, compared with 80 percent in September.
There are also signs that the housing market is responding to tighter amortization standards, which many banks are phasing in before they’re officially enforced.
After “very significant” house price gains over the past two years, “somewhere, there will be a limit,” said Johan Vesterberg, a spokesman for real estate agency Fastighetsbyraan. “It could be that we now have reached a level where it is starting to affect spending power.”