‘Trump effect’ could knock Swedish house prices

The election of Donald Trump could lead to falling house prices in Sweden, according to some experts.

'Trump effect' could knock Swedish house prices
Photo: Fredrik Sandberg/TT
Swedish mortgage rates could soon rise on the back of rising market interest rates following the election of the populist Republican as the United States' next president.
Yields on Swedish ten-year government bonds have doubled in the past week, from 0.25 to 0.52 percent, in line with similar patterns around the world. The cost of bank-to-bank lending has also increased significantly, something that might have a knock-on effect on domestic lending, at least “to a small extent” according to Tor Borg, chief economist at Swedish state bank SBAB.
Claes Hemberg, economist at Avanza, said Swedes' high levels of mortgage debt made them vulnerable to rising interest rates:
“When today's borrowers are putting 20-25 percent of their incomes on mortgage interest, rising rates can quickly ruin what might look at first glance like the most solid of private financial situations.”
The changed circumstances follow Trump's pledge to massively increase infrastructure spending, leading many investors to shift investments from government bonds into the shares of companies likely to benefit from Trump's policies.
In Sweden, shares in property companies have fallen in the past week, with the property index in Stockholm falling five percent since Trump's election, despite the market as a whole rising. 
It's too early to say whether Sweden's private housing market has fallen, but even prior to Trump's victory the rises of recent years appeared to have reached a plateau. In October, prices of houses and apartments rose by 1 percent, but this was an exception to the recent pattern of stagnation.


Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”