The Riksbank sees a deeper fall in housing prices in Sweden when interest rates rise
(Bloomberg) — The Riksbank expects Sweden’s housing prices to fall more than it has forecast so far, driven down by a series of interest rate hikes.
The Nordics’ largest nation is one of the frontrunners in the global housing slump, with a nominal decline of around 14% from a peak earlier this year. The falling property prices are driven by rising inflation and increased borrowing costs aimed at maintaining confidence in the central bank’s inflation target.
The Swedish central bank now sees house prices falling by 19.9% by the end of 2023 from their peak earlier this year, compared to the previous estimate of 18%, according to data from the Riksbank. It was as if policymakers raised their key interest rate by 75 basis points to rein in inflation, signaling more to come.
Read more: Riksbank sees more increases after interest rate salvo on the verge of recession
The pain is so severe in Sweden partly because households tend to have large loans relative to their incomes and because higher central bank interest rates are quickly passed on to their borrowing costs because most loans have interest rates that are fixed for a year or less.
House prices “will continue to fall in the coming years, to around the level that prevailed before the pandemic,” the Riksbank said. “There is a risk that the adjustment process will be more abrupt and that housing prices will fall more than is currently assumed.”
(Updates with Riksbank data, charts.)
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