Sweden is facing its ‘day of reckoning’ as house prices plummet
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Loading... - Amelia Poulin
- 25 Jan 2023
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Sweden’s property prices are facing a serious drop as the country’s former central bank governor warns of lofty household debt levels.
House prices in Sweden have risen fairly reliably over the last decade. This has been buoyed by ultra-low interest rates in a system where around half of people’s mortgages are financed with variable rates and many of the rest are on short-term fixed rates.
But now property prices are tumbling. And this downturn is not surprising given the “dysfunctional” nature of the market, according to Stefan Ingves, who headed Sweden’s Riksbank from 2006 to 2022.
“I’ve persistently time and time again said that the debt level in the household sector is just way, way too high and there will be a day of reckoning and eventually rates will go up, and now rates have gone up,” Ingves told CNBC’s “Squawk Box Europe” in an exclusive interview Tuesday.
“What you see happening now is almost exactly what you would expect to see happening, and that is that households have to pay more and the interest rate sensitivity … is much higher,” Ingves added, which makes interest rate payments higher for a huge number of Swedish households.
The pandemic effect
During the Covid-19 pandemic, house prices across Europe continued to rise, and Sweden was no exception. Demand for property skyrocketed as working from home and a preference for domestic vacations prompted people to upsize their spaces.
On average, house prices were up as much as 30% compared to the pre-pandemic level of January 2020, according to Nordea Bank, as the Riksbank started purchasing mortgage bonds, trying to bring rates down and adding fire to an already hot housing market. Read More…
