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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? 


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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KEY POINTS: Which election promises are missing from Sweden’s budget?

Lower taxes on work and savings, lower fuel prices and pausing rules on paying off mortgages. How many of the government's election promises have actually made it into their budget?

KEY POINTS: Which election promises are missing from Sweden's budget?

Income tax cuts and lower taxes on pensions

Has it been implemented? Kind of.

During the election campaign, the Moderates promised income tax cuts and reduced taxes on pensions to the tune of 30 billion kronor. This hasn’t made it into 2023’s budget, other than the fact that income taxes for those over 65 who continue to work past retirement age will be cut, starting next year.

This tax cut for pensioners will affect around 400,000 people, giving a tax break of around 1,900 kronor per year for most, with a max cap of 6,000 kronor per year. It will cost the government 770 million kronor to implement.

Finance minister Elisabeth Svantesson was unable to say when income tax cuts would be implemented for other groups.

“We’ll have to get back to you on that, it depends on the financial situation, but the mandate period is long,” she told TT newswire.

There will be no changes to taxes on pensions.

Tax cuts on investment savings accounts

Has it been implemented? No.

Another Moderate Party election promise – which made it into the government’s coalition agreement with the Sweden Democrats – was to cut taxes on investment saving accounts (ISKs), so that savings of up to 300,000 kronor would not be taxed. This has not made it into this year’s budget.

“It’s important to be restrained in a very difficult situation so we don’t increase inflation,” she told TT newswire.

The budget states that “the government aims to propose lowered taxes on savings by making a basic level of 300,000 kronor on investment savings accounts tax-free during this mandate period”, which suggests that the policy hasn’t completely been scrapped, but will not be implemented in 2023.

According to finance magazine Privata Affärer, those with their savings in investment savings accounts can instead expect “sky-high taxes” on their ISK accounts next year, due to increased interest rates.

Their calculations suggest that those with savings of 300,000 kronor could expect to pay 2.5 times as much tax on their savings next year compared with this year, the highest level of taxes on ISK accounts since their introduction in 2012.

Lowered fuel prices

Has it been implemented? Kind of.

During the election campaign, the Moderates, Christian Democrats and Sweden Democrats promised to lower diesel and petrol prices by between 5 and 9 kronor per litre through lower taxes, lower VAT and lowering the reduction obligation to mix expensive biofuels with fossil fuels to make them more environmentally friendly.

Fuel prices will be lowered at the pump, but only by 14 öre for petrol and 41 öre for diesel. 

“I think it’s well-balanced,” Svantesson said. “We’re doing what we promised. The biggest difference for drivers will come in January 1st, 2024, when we lower the reduction obligation to the EU’s minimum level.”

This will cost the government 6.7 billion kronor in 2023, going up to 6.9 billion kronor per year in 2024 and 2025.

Pause on mortgage repayment requirements

Has it been implemented? No.

The governing Moderates and Christian Democrats, as well the Sweden Democrats, promised to pause current mortgage repayment requirements (amorteringskravet) prior to the election, proposing a similar system to that which was implemented during the pandemic when borrowers were only required to make interest payments rather than actively paying off their mortgages.

This is not included in the budget for 2023, as it is now considered to be contrary to the Riksbank’s (Central Bank’s) measures to combat inflation.

High-cost protection for energy prices

Has it been implemented? Kind of.

The Moderates promised to introduce a temporary high-cost protection scheme for winter 2022/23, which would consist of the government subsidising “a majority of the excess costs” if “the monthly price exceeds a certain level”, which would be determined by the market situation each month. They also stated that this scheme would be implemented by November 1st 2022.

This has somewhat been implemented, but not via the budget. Instead, the government has proposed an alternative energy subsidy system, which will comprise a one-off payment based on last year’s usage to users which have an energy agreement (nätavtal) on a certain date – most likely in November or December this year.