Housing Slump Gathers Pace in Sweden After Buyers Lose Faith

(Bloomberg) -- Sweden’s housing slump deepened last month as the market struggles to absorb a supply glut and households lose confidence.

Home prices fell 2.9 percent nationwide in November, following a drop of 3.0 percent in October, according to the Nasdaq OMX Valueguard-KTH Housing Index, HOX Sweden, which was published on Thursday. They are now 0.2 percent lower than a year earlier, the first time since May 2012 that prices have dropped on an annual basis. Another set of data on Thursday, from Svensk Maklarstatistik AB, also showed a decline.

The property market in the largest Nordic economy is rapidly cooling after years of price increases that were driven largely by housing shortages and ultra-low interest rates. Supply is now outstripping demand and stricter mortgage rules, as well as growing apprehension among households, are driving prices lower. The drop is being led by high-end apartments in Stockholm.

Greater supply “has resulted in buyers having more to choose from and taking longer before buying,” Hans Flink, head of sales and business development at Maklarstatistik, said in a statement. “The sellers are therefore starting to adjust their prices to the tougher competition, which is pushing prices down somewhat.”

According to Maklarstatistik’s number, nationwide apartment prices fell a monthly 3 percent in November, adding to October’s 1 percent drop. House prices fell 1 percent in the month, after being unchanged in October. Apartment prices in greater Stockholm fell 3 percent in the month and were down 4 percent from a year earlier, the first such decline in almost six years.

The slump in Stockholm apartment prices is even more dramatic, according to Valueguard. The monthly drop of 4.2 percent is the steepest since October 2008, while the annual decline of 6.0 percent is the largest since June 2009.

The growing risks have been noticed abroad, with traders pushing the krona down almost 5 percent since August. Officials, including the finance minister and the central bank governor, have so far taking a hands off approach, arguing that a cooling in prices is natural after the rapid increases of the past years.

Read more on the government’s take here

But households are getting increasingly pessimistic. SEB AB’s housing-price indicator, which measures the difference between those who believe prices will rise and those who expect them to drop, fell to minus 5 in December. It showed that for the first time since February 2012, a majority of Swedes expect prices to fall in the coming year.

But there may be glimmers of hope. Andreas Wallstrom, an economist at Nordea Bank AB in Stockholm, said data for the last few weeks from property-listings website Booli “are rather encouraging,” as they indicate that prices have leveled out since mid-November and up until the first week of December. Average prices per square meter have even increased somewhat in both Stockholm and in the country as a whole in that period, he said.

“Our tentative call for December is that home prices will stay unchanged compared to November,” Wallstrom said. “In all, we forecast relatively stable home prices from here. To see a sustained downturn in prices, it will likely require a change in households’ housing costs. As long as mortgage rates remain low, which we expect, it is difficult to see a marked decline.”

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