A severe 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 outlet warned that after nearly twenty years of stable growth, the country’s property market is undergoing “a dramatic change.” Housing prices have plunged by 15% from their peak in nominal terms this year, driven by surging inflation and rising borrowing costs, it said.
Swedish consumers have cut spending drastically amid an unfolding cost-of-living crisis. This has brought more pain to the property sector, where economists now expect the decline in housing prices to surpass the forecast 20% drop-off.
Sweden’s housing market is the most vulnerable among 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 as saying.
The report indicated that about 64% of Swedes own their houses, but most people don’t have long-term fixed-rate mortgages. 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 mounting that consumer spending will grind to a halt.
Retail sales along with lending are plummeting and there are “no positive signals from the domestic economy, and especially not from households or the housing market,” Annika Winsth, the chief economist at Nordea Bank, warned.
Household debt as a percentage of Sweden’s gross domestic product stands at 90%, according to Bloomberg, meaning that higher borrowing costs will have a severe impact on consumption.
A more acute 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 severe downturn in this sector could put significant pressure on the country’s banks, the outlet warns.
Economists warn that the situation in the property market could deteriorate further if inflation persists. Sweden is now at risk of falling into the worst recession among the 27 countries comprising the EU, analysts believe.
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