House Party Soon Over in Sweden as Rates Stick, Nordea Predictsby
Sweden’s housing boom will run out of steam during the course of the year given that mortgages are no longer getting cheaper.
That’s the prediction of Nordea AB Chief Analyst Andreas Wallstrom, who also says that new regulations being studied to cool the market are at best unnecessary and at worst ineffective.
The main argument for stagnating housing prices is that "mortgage rates have stopped falling," Wallstrom said in a note Monday. "This will remain valid and in recent months there has even been a tendency to slightly higher rates."
Wallstrom’s comments come on the back of data showing that a housing price indicator compiled by SEB AB, a Swedish bank, fell for a second month in a row in January.
Sweden’s red-hot property market has sparked concern among regulators and at the central bank, whose policy of cutting interest rates deep below zero has so far pushed household debt to record levels without generating enough inflation.
House price data for the second half of 2016 also suggests that an amortization requirement introduced in June had only a limited effect in terms of cooling the market. The Swedish Financial Supervisory Authority has warned that a next step could involve capping household loans in relation to their income.
According to Wallstrom, that will most likely be unnecessary. Disposable incomes are expected to grow at a slower pace this year and the next, while the current boom in housing construction could turn out to be based on overly optimistic expectations.
"If there’s anything we know from other countries and experiences, it’s that crashes in the housing market have always been preceded by several years of increasing housing investment," he said. And while Sweden’s population may be rising, that’s got a lot to do with the recent influx of refugees, most of whom will "hardly be in a position to contribute to pushing housing prices higher near term."
Although he concedes that he had been wrong to predict stagnant prices during the second half of last year, Wallstrom can this time draw on some support from SEB data suggesting a slight increase in the number of people anticipating prices falls over the next 12 months.
Still, SEB analyst Elisabet Kopelman says the fact that its indicator remains at "historically strong levels" suggests "prices will continue to grow at a modest pace."