Sweden's home prices will likely continue higher

Sweden home prices will likely continue higher despite the recent sharp rises to seemingly high levels. The main reason is that mortgage rates, which historically have correlated well with home prices, are set to remain low also in future.

Households' swelling balance sheets clearly lead to greater interest rate sensitivity. And with every year that prices rise, the point is beingh inevitably approached when prices will start to fall. Still, it is difficult to see what factors might trigger a price decline. 

Over the years the Swedish housing market has been highly resilient, both to dramatic stock market falls (the IT crash) and severe economic downturns (the financial crisis in 2008-09).

"A major price decline likely requires a marked rise in households' financing costs, that is, interest rates, which is not followed by a similar increase in incomes. As far as known, no forecasters expect such a scenario of rising interest rates. On the contrary, subdued global inflation and growth trends support low interest rates for a long while yet", says Nordea Bank.

It might also be worth recalling Riksbank Governor Stefan Ingves's comments from 2011 when he said that the policy rate "could be anywhere between zero and 7% in 2015". So looking back, it turned out that he was wrong, along with everybody else.