What’s Causing the Swedish Housing Market Plunge

The Swedish housing market, long one of Europe’s hottest, has become one of the world’s coldest. The slide in prices is at levels comparable to the early 1990s, when Sweden was rocked by a property crash that reverberated throughout its financial markets and forced the government to take over banks that were on the brink of default. This time, high prices and interest-rate hikes meant to combat fast inflation have combined to knock home values down more than 15% from their peak in March 2022, with many predicting further declines — and that the housing market’s woes could exacerbate a looming recession.

There had been warnings, for years if not decades, of an exaggerated run-up in housing prices. Home values were driven up by a shortage of housing, years of low interest rates and by mortgages that for years required only interest payments. New amortization requirements introduced from 2016 changed that, but most households are still only obliged to pay down their debt to 50% of property values. The results include home-price increases that outstripped the pace of wage hikes as well as gross domestic product expansion, and left many home owners deep in debt.