However, for the moment, property sellers are slowing down the development.
"The sellers find it difficult to accept the new situation," professor of economics at Södertörn University Mats Bergman explained.
Sweden's central bank (Riksbank) has been raising the key interest rate since Spring, and in line with that, prices in the housing market have fallen.
Several banks, including the Riksbank, predict that prices will plummet by 20 percent from their peak level.
"One should remember that what happened during the pandemic was not healthy either. We are comparing ourselves to a unique period where the market was completely crazy, and we also had low interest rates and low inflation. You might even be able to talk about a normalisation instead of a disaster," Claudia Wörmann, housing economist at SBAB, noted.
Interest rate effect
The interest rate increases are hitting the housing market prices hard.
But the price increases of food, energy, and fuel also make consumers more cautious, leading them to wait when it comes to buying a home, according to Cecilia Hermansson, a Swedish researcher focusing on real estate and finances.
"It is quite a dramatic development for many, both in terms of interest rates and prices," she said.
The fact that prices have not fallen further, despite most people expecting the policy rate to land at just over 3 percent next year, is due to the fact that there is resistance in the market, Bergman notes.
"The sellers find it difficult to accept the new situation and are resisting the price drop. We see this, among other things, in the fact that it takes longer before homes are sold. The sellers are holding out and hope this will be a temporary slump," he noted.
It's hard to predict when things will turn around, Hermansson added.
Bergman, on the other hand, thinks the market could bottom out sometime in 2023.
"If the scenario surrounding the key interest rate is correct and the interest rate levels off in the Spring, and if the economic downturn is not particularly severe, then the market will probably stabilise next year. But it is difficult to predict," he told the news bureau TT.
When could housing prices rise again?
For prices to rise, the situation must become more stable, and the world economy needs to start recovering, according to Hermansson.
"(For the prices to rise), I think we need to get signals that the Riksbank is starting to lower interest rates, that inflation is low again, and that it won't rise again next winter," she pointed out.
Bergman does not believe that housing prices will rise in the same way as they have in recent decades once prices have stabilised.
"Prices have risen to a level that is very high in relation to incomes. My prediction is that we cannot count on 20-30 years of rising prices," he concluded.
Comments (1)