Scandinavia’s Hottest Housing Market Hits Limit as Rates Plateau

The hottest housing market in one of the world’s richest regions may have turned a corner.

In Sweden, where residential property prices have almost doubled over the past decade, household borrowing slowed for the first time in four years in June, with mortgage lending the main driver behind the development. Earlier this month, an index from Valueguard showed Swedish housing prices fell 1.5 percent in June from May, following a drop of 0.6 percent the previous month.

The housing market in Scandinavia’s largest economy has been fueled in recent years by a lack of supply and by record-low central bank rates needed to revive inflation. Since February last year, policy rates have been negative. While mortgage rates initially responded by sinking to record lows, they now seem to have plateaued.

“Mortgage rates are central for housing prices, and they have been unchanged for a year and we don’t think they will fall further,” Torbjoern Isaksson, an analyst at Nordea Bank AB in Stockholm, said in a telephone interview on Wednesday. “That means that the housing market gets less and less fuel. Housing prices will stabilize and then credit growth will also stabilize.”

The development should be welcome news for policy makers, who have long warned of the risks posed by soaring home prices. It could also free them to refrain from further regulatory measures to stem debt growth, following a cap on loan sizes in 2010 and an amortization requirement last month. Swedish authorities have also warned they may impose caps on mortgages relative to incomes.

“The likelihood of more macro-prudential measures decreases if the housing market calms down,” Isaksson said.

But there is a flip-side. Rising asset prices usually result in households being more willing to spend, so a slowdown in the housing market could make Swedes more cautious with their money, Isaksson said. And less consumer spending might keep down the inflation gauge the Riksbank is so eager to boost.

There are already signs households are growing more concerned. SEB AB’s housing price indicator fell in July to its lowest level since March 2013. That came after Sweden pushed through its new amortization requirement and following Britain’s decision to leave the European Union, which sent markets into a tailspin. Meanwhile, Swedish consumer confidence fell in July, with the index reaching its lowest level since mid-2013.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE