Swedish housing market momentum rebounds in H2 2016, likely to fade going forward

The housing market of Sweden gained back momentum in the second half of 2016. Seasonally adjusted figures from HOX/Valueguard showed that apartment prices were up 1.3 percent sequentially and 8 percent year-on-year. Therefore, after a slow first half of 2016, the upward trend in prices continued in the second half of 2016.

During the course of 2016, house prices turned higher as compared to the anticipated stagnant prices. However, the seemingly solid trend in recent months is unlikely to be sustained in 2017 and 2018. Already certain fragility is visible below the surface, noted Nordea Bank in a research report. For example, monthly sales volumes as well as credit growth are now on declining trends.

Mortgage rates have stopped declining, which is the main argument for stagnating housing price. This would continue to be valid and in recent months there has been a tendency of slightly higher rates. Household disposable income is also likely to expand at a slower rate in 2017 and 2018.

“On the regulatory side we do not expect any changes ahead but should prices continue to rise we expect that the first measure in pipeline is the loan-to-income ceiling as proposed by the Swedish FSA”, said Nordea Bank.

Fundamental factors of demand and supply also indicate towards a cooler housing market. Activity in residential investment has increased noticeably in recent years and the figure of housing starts in 2016 was the highest in 25 years. The supply is expected to be met by higher demand as population is anticipated to expand significantly in the next few years.

However, the experience from other nations indicates that housing market’s downturns are usually preceded by a period of high housing investment. Moreover, the rise in the population is just a rough estimate of the demand for housing.

“In sum, we keep the forecast of a stagnating housing market going forward, which implies a gradual decline to 0% annual growth at the end of 2017”, added Nordea Bank.