Housing slump shows what may lie ahead for other economies

STOCKHOLM: Sweden’s home-price decline accelerated in October, as the Nordic country gripped by the most severe housing slump in three decades shows what may lie ahead for many other developed economies.

One of the pacesetters for a global housing downturn fuelled by soaring inflation and central bank moves to curb price increases, Sweden has now seen home prices drop by about 14% from a peak earlier this year, according to Valueguard, which compiles the data. Prices have slid for seven straight months as households are squeezed by the rising cost of living.

The slump is unusual in a country where previous corrections have been shallow and short-lived, and many young home buyers have never experienced a housing market crash.

While housing markets are cooling across the world with fewer transactions taking place, price declines have yet to begin in a number of countries. Home prices in Canada are now down 10% from their peak. In addition to Sweden, peak-to-trough declines of as much as 20% are forecast for countries including the United States, the United Kingdom and New Zealand.

“A lot of homes are being sold at levels around the asking price, and bidding wars are rare,” Marcus Svanberg, chief executive of Lansforsakringar Fastighetsformedling, a realtor, said in a statement. “We don’t expect to see a real recovery until spring next year.”

In October, the HOX Sweden housing-price index decreased 3% from the previous month, the steepest drop since June, Valueguard said yesterday.

The declines are led by detached houses, which are particularly vulnerable as electricity prices soar.

A report published last week by realtor organisation Maklarstatistik showed that the price drop is twice as large in southern electricity zones, which suffer from a deficit and high rates, than in the northern end of the country, which enjoys an abundance of hydroelectric power.

Most forecasters expect the decline to continue, and the current trajectory indicates that the outsized gains in housing prices achieved during the pandemic could be erased by early next year.