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PROPERTY

Swedes have not been this pessimistic about house prices since 2008

House price optimism has taken a nosedive, according to the latest indicator report from Sweden's SEB bank. Sentiment among Swedes is now the most negative it has been since the 2008 financial crisis. What's going on?

Swedes have not been this pessimistic about house prices since 2008
A street of detached houses in Enköping. Photo: Fredrik Sandberg/TT

How pessimistic are Swedish households? 

Very.

Households’ expectations for housing prices have fallen sharply this month, with SEB’s indicator dropping eleven percentage points in July, from -16 to -27, the lowest level it has hit since the financial crisis in 2008. 

The indicator, which has historically been a reliable predictor of house prices, turned negative in June for the first time since the pandemic hit in April 2020. 

The indicator is calculated by subtracting of the percentage of respondents who think house prices will fall from the percentage who think they will rise.

In July, the proportion of households surveyed who expected rising prices fell to 24 percent, down from 31 percent in June, while the proportion expecting falling prices rose to 51 percent from 47 percent. 

What is the reason for households’ pessimism? 

Américo Fernández, SEB’s private economist, told The Local that households in Sweden had reacted strongly to the decision of Sweden’s Riksbank central bank to hike rates, with most believing that the base interest rate would rise to 1.10 percent within a year.  At the same time, he said, households understood that inflation would reduce household spending power, making it harder for people to service large mortgages. 

“The result is not that surprising since inflation is on its highest levels since early 1990s and interest rates are increasing rapidly,” he told The Local. “These joint factors make it much more difficult for households to consume at the same high levels, meaning that they have decrease some of their consumption, and new mortgages and houses will be on that list.”.

He said it remained to be seen whether expectations improve again rapidly, as they did at the time of the pandemic, or would remain low. 

“Now the question is if this decline in expectations will turn around rapidly like during early pandemic (march/April 2020) or if it will continue in a negative slope like in the financial crisis of 2008.”

How badly has consumers’ spending power been hit by rate rises in Sweden? 

According to Christina Nyman, chief economist at Handelsbanken, a major Swedish bank, rising interest rates are already weighing on consumers’ buying power.

“For a household with loans of SEK 3m, this translates to additional costs of SEK 3,300 per month, which we believe is putting a cap on other consumption,” she said of the Riksbank’s rate increases so far. 

She warns in the bank’s most recent Global Macro Forecast that if the Riksbank speeds up its rate hikes, it could lead to a proper recession in Sweden.

“An acceleration of the rate-hike program could result in a drop in housing prices and a more severe recession,” she said.

Are we going to see a housing crash?

To qualify as a housing crash, home prices need to plummet by at least 15%, something which has not happened in Sweden since the 2008 financial crisis when prices in Sweden fell by as much as 20%, before rebounding gradually over the following years.

So far, it looks more like house prices in Sweden are set to decline more gradually, as there has been no new shock such as a stockmarket crash or banking crisis. 

How are homeowners responding? 

According to SEB’s report, 12 percent of households who currently have a fluctuating rate mortgage said in July that they are now planning to move to a fixed rate mortgage to avoid being hit by further rate hikes from the Riksbank, an increase of one percentage point from the June survey. 

The proportion who say they have already fixed the rate on their mortgage has risen by four percentage points to 37%. 

How might the average person be impacted?

Future buyers will profit from a drop in prices, despite all the suffering that frequently precedes a property catastrophe. On the other hand, the crash could be catastrophic for homeowners because they might have to sell their homes for less than what they paid.

Families who are forced to sell because they cannot afford their mortgage payments, for instance, or those who experience unemployment or illness, may therefore suffer significant capital losses.

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PROPERTY

These are our readers’ top tips for buying a property in Sweden

Buying an apartment or house in Sweden can be a daunting process, but with rentals so hard to get, many foreigners end up taking the plunge. Here are the top tips from readers who have done it.

These are our readers' top tips for buying a property in Sweden

Get prepared! 

Most of the respondents to our survey stressed the importance of preparation. 

“Spend time on defining your requirements properly, including visits to different locations to narrow down your search,” advised Julian, a Brit living in Malmö. 

As well as working out your requirements, other participants argued, you should also get to grips with the way the bidding system works in Sweden, with one British woman recommending buyers “speak to professionals about the buying procedure”. One respondent went so far as to recommend hiring a buyers’ agent, something international employers sometimes provide for senior executives moving to Sweden. 

Elizabeth, a 26-year-old charity worker from South America, recommended that all buyers “learn to read a bostadsrättsförening årsredovisning”, the finance report for a cooperative housing block. (You can find The Local’s guide here.) 

Get to know the market 

Maja, an anthropologist from Hungary, said it was important to take time to get a feel for the market, suggesting buyers visit different areas to find the one that they like. 

“It will take 6-12 months easily,” she predicts. “Don’t rush. Visit the neighborhoods where you are thinking of buying.”
 
Others recommended spending time surfing Sweden’s two main housing websites, Hemnet and Booli, to get a better feel for how much different types of housing in different areas typically sell for, before starting to look seriously yourself, with one even recommending going to viewings before you have any intention of buying.  
 
“Start visiting houses and monitoring bids. That will give you a sense of the process,” recommends Shubham, 31, a software engineer from India.
 

 
Think about your expectations
 
While house prices have soared in Sweden’s cities over the past decade, the same is not the case in all rural areas, something some respondents thought buyers should take advantage of. “To buy a house at a lesser price, look at areas as far from urban areas as is possible for you and your family,” wrote Simon, a 61-year-old living in rural Sweden. 
 
Julian warned bidders against areas and types of homes that “will attract tens of ‘barnfamiljer’ (families with children), meaning “bidding wars will result”, pushing up the price. 
 
On the other hand, one respondent warned people to “avoid buying apartments in vulnerable areas, even though prices will be lower there”. 
 
An Italian buyer recommended looking at newly built apartments coming up for sale. 
 
 
Get a mortgage offer before your first serious viewing 
 
Getting a lånelöfte, literally “loan promise”, can be tricky for foreigners in Sweden, as our recent survey of banks’ policies showed. 
 
Shubham warned against applying for a loan promise from multiple banks, arguing that this can affect your credit rating if your finances are not otherwise good. He suggested using an umbrella site like Ordna Bolån and Lånekoll, although he warned that the payment they take from the ultimate mortgage provider might ultimately be taken from borrowers.  
 
READ ALSO: 
 
Get to know the estate agents, but don’t necessarily trust them 
 
Gaurav, a sales manager based in Stockholm, recommended getting to know local estate agents in the area where you are planning to buy, as they might be able to direct you towards owners who are in a hurry to sell. “Those can be the best deals as you have greater chances to avoid bidding on such properties,” he argued. 
 
Maja, from Hungary, warned, however, against believing that the estate agent is on the buyer’s side. 
 
“You cannot really make friends with them, they work for commission and they will also try to raise the selling price,” she said. “It’s how they present you to the seller that matters. Seem like a serious buyer.” 

 
Should you try to make an offer before bidding starts? 
 
Morgan, a 33-year-old marketing manager from France, said it was worth studying the kommande (coming soon) section on Hemnet and Booli to spot houses and flats before they are formally put on the market. “Be alert. Book an appointment asap and get a private visit to reduce competition. If the apartment is what you’re looking for, make a reasonable offer with a condition to sign the contract in the next 24 hours,” he recommends. “You will cut the bidding frenzy and save money.”
 
Gaurav also recommended getting a private viewing and making an offer while the property was still off the market, as did Julian. 
 
“If you are lucky, you might find owners who are in a hurry to sell,” Julian said. “Those can be the best deals as you have greater chances to avoid bidding on such properties.” 
 
But other foreigners warned against bidding before a property is publicly put up for sale on housing websites, arguing that estate agents used this as a way of getting higher prices than they would expect to get at auction.  
 
“You are essentially negotiating directly with the owner, without finding out the actual market price via bidding,” argued a 31-year-old Indian business analyst. “Usually this will work only for an apartment not in top condition.” 
 
What to watch out for in the bidding process 
 
Morgan advised buyers to take what estate agents say about rival bidders with a pinch of salt. 
 
“Estate agents will play the competition card. Don’t fall for their trick and keep a cool head. Ask yourself if it really worth it before increasing a bid,” he wrote. 
 
In Sweden, it is possible to make a hidden bid, which is not disclosed to other bidders. One Indian software developer warned that estate agents would often claim that there was such a bid to pressure you. 
 
“The hidden bids are really confusing as you don’t know the bid placed,” he said. “It’s a trap to get higher bids. “
 
A 21-year-old Romanian agreed it was important to watch out for estate agents who try to rush or panic you. 
 
“[Look out for] those that try to rush you into it by saying stuff like ‘this will be gone by Monday, the owner wants to sell fast’, or if they don’t want to include a two-week period to have the property inspected as a clause in the contract,” she said. 
 
Maja recommended choosing an estate agency that required all bidders to supply their personal number, with all bids made public, “because other agencies might cheat that price rise”. 
 
“Don’t be the first bidder,” she added. “Keep your cool, and if the agent calls or messages, just hold on. There is no official end to the bidding. Only when you sign the contract. So the best game is to seem very serious but not stupid. You have a budget, and try to sign the contract the same day or the next if you are the highest bidder.” 
 
Is now a good time to buy? 
 
The respondents were, predictably, divided. 
 
“It’s risky for both sellers and buyers,” said Carl, a Swede who recently returned home from China. “The market seems to correlate pretty well with central banks raising interest rates. If that’s the case, then it’s still a sellers’ market since central bank [Riksbank] will continue to increase interest rates until 2024.” 
 
“It’s difficult to predict anything at the moment,” agreed Gaurav. “Prices should fall a bit but that’s not happening in all the areas. Avoid buying or selling if you can for a few months.” 
 
“I see there is no difference in buying in total cost. You can get a property at a lower price but end up paying more in interest and the price is the same in five to ten years,” said one Indian software engineer. “Buying is still better than renting.”

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