Sweden’s ailing housing market may be entering a calmer phase after being battered by rising interest rates and soaring costs of living, Riksbank Governor Erik Thedeen said.
(Bloomberg) — Sweden’s ailing housing market may be entering a calmer phase after being battered by rising interest rates and soaring costs of living, Riksbank Governor Erik Thedeen said.
“If you look at some of the indicators, the decline may have subsided,” Thedeen said at a residential real estate conference in Stockholm. “Perhaps there are signs of some form of stabilization on the housing market, but we will have to see how this develops going forward.”
The Swedish krona rallied in the wake of the comments, advancing as much as 0.5% to 11.0017 per euro. After experiencing steep losses, the currency has recovered to become the best performer among Group-of-10 peers so far this year, spurred by signals from Riksbank policymakers that they won’t be deterred from further monetary tightening.
The Swedish market for residential property is in one of the worst routs globally, with 16% of home values wiped out in the past year after higher rates fed into variable mortgages. Most forecasters, including the Riksbank, expect the decline to reach 20% from the peak a year ago.
However, Thedeen said that Sweden is currently not experiencing is a housing crash, given the declines so far have happened at a relatively calm pace.
“If it stays on this level it is a fairly manageable decline,” Thedeen said. “It is sometimes described as a crash but you should view it from the perspective that we are now close to the level we were at when the pandemic started.”
Downplaying the risk for the housing sector seems to be part of a new Riksbank strategy, alongside a focus on the negative impact of a weaker krona, according to Stefan Mellin, an analyst at Danske Bank A/S. Fears that the housing slowdown would prevent the Riksbank raising rates as far other countries helped drive the currency to the lowest level versus the euro since 2009 earlier this month.
“That part of the krona headwind is gone,” Mellin said, adding that nonetheless in in the longer term, there could be further drags on the currency as prospects for the economy deteriorate. “The outlook is not very rosy and the higher rates go, the stronger the headwinds for households and house prices.”
The Riksbank has raised rates five times since April, bringing its key interest rate to 3% this month. This week, economists amped up their bets of future hikes after underlying inflation showed no signs of budging and Thedeen’s comments in the minutes of the February meeting were interpreted as hawkish.
Also this week, economists at Swedbank AB floated the possibility of the Riksbank calling an extra meeting in March — especially if the krona weakens. Asked about the possibility of an additional meeting before a scheduled one in April, Thedeen told reporters after the speech that the issue is not currently on the table, and that “it would take fairly exceptional reasons” to do so.
(Updates with analyst comments from seventh paragraph.)
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