The nation’s real estate market has collapsed amid slowing consumption
A sharp slump in Sweden’s real estate sector threatens to deepen a looming economic crisis in the Nordic region’s largest economy, Bloomberg reported on Monday.
The store warned that the country’s real estate market, after almost twenty years of stable growth, is undergoing “a dramatic change.” House prices have fallen 15% from their peak in nominal terms this year, driven by rising inflation and rising borrowing costs, it said.
Swedish consumers have cut spending drastically during an ongoing cost of living crisis. This has brought more pain to the property sector, where economists now expect the fall in house prices to exceed the forecast of a 20% decline.
Sweden’s housing market is the most vulnerable among the EU states due to the country’s monetary policy, which “has a faster pass-through here than in other economies,” an economist at Swedbank, Maria Wallin Fredholm, was quoted.
The report showed that around 64% of Swedes own their houses, but that most do not have long-term mortgages with a fixed interest rate. They are therefore exposed to rising interest rates, which are now at their highest levels in more than a decade following a series of hikes by the country’s central bank. Fears are growing that consumer spending will stagnate.
READ MORE: The EU nation’s decline in the real estate market is deepening
Retail trade together with lending is collapsing and there is “no positive signals from the domestic economy, and especially not from households or the housing market,” Annika Winsth, chief economist at Nordea Bank, warned.
According to Bloomberg, household debt as a share of Sweden’s gross domestic product is 90%, which means that higher borrowing costs will have a strong impact on consumption.
A more immediate risk may lie in the commercial real estate market, the Bloomberg article says. With commercial lending accounting for up to 36% of the loan books at Sweden’s major financial institutions, a sharp decline in this sector could put significant pressure on the country’s banks, the outlet warns.
Economists warn that the situation on the real estate market could deteriorate further if inflation persists. Sweden is now at risk of ending up in the worst recession among the 27 countries that are part of the EU, according to analysts.
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