On the surface, 2023 was a calm year on the Swedish housing market. Housing prices were unchanged in December 2023 compared to the start of the year, despite a small increase over the summer. The market for single-family houses remain the main drag on price development, posting a 14.5% decline from the peak in February 2022 compared to -10.5% for apartment prices. In total, national housing prices are 13% lower than the previous high.

While prices stalled in 2023, transaction volumes continued to decline and were 25% lower compared to the record-year of 2021. At the same time, supply of homes has risen to new record-highs. This widening imbalance between supply and demand constitutes a key uncertainty and downside risk to our forecast the day the pent-up supply starts to unwind.

A more positive factor for home prices is that inflation is normalizing quickly and the Riksbank has reached its peak rate. The more rapid decline in inflation is one reason that we now expect the Riksbank to cut its policy rate in May, followed by five additional cuts this year, bringing down the policy rate from today’s 4.0% to 2.5% by year-end. However, we expect the Riksbank to keep the policy rate on hold in 2025. In other words, households’ interest burden is set to ease earlier than expected, but will remain at a higher level than before the pandemic. The interest rate cuts will thus provide much-needed fuel, albeit limited, to the housing market.



Accordingly, we expect housing prices to bottom out this summer, i.e. shortly after the Riksbank’s first rate cut in May. Near-term, however, we expect continued weakness and that prices will decline somewhat more by 2% until June, resulting in a total decline from the peak to -15%. From the middle of 2024 to the end of 2025, we expect housing prices to rise by 5%. In real terms, prices in relation to nominal disposable income are instead set to decrease slightly.

Swedish households are interest rate sensitive and changes to the policy rate usually have a direct effect on housing prices. For instance, prices started to fall the following month after the Riksbank’s first rate hike in February 2022. Although there are few rate cut cycles in the 2000’s to draw conclusions from, the housing market historically responds to the first rate cut with an almost immediate increase in prices. However, the first rate cut during the financial crisis 2008 did put an end to the downtrend in housing prices, but it took another four months before prices started to rise. After the first rate cut in 2012, prices reversed higher the month after.

The risks to our forecast are balanced. On the one hand, the recovery in home prices could come earlier since households’ interest rate expectations have started to decline. On the other hand, other housing related costs are set rise further, as i.e. tenants’ associations hike their fees due to higher interest rate levels and rising utility costs. Increased geopolitical uncertainty and rising shipping costs could cause the Riksbank to take a more cautious approach to lowering rates. As mentioned earlier, the pent-up supply could also counteract price growth when the housing activity recovers.
To sum up, we expect the effect from lower interest rates and rising real disposable income to provide enough relief for Swedish households to support price growth looking forward. Prices will start to recover this summer at a slow pace as the interest burden starts to ease.