Sweden’s sliding house prices could be only halfway to the bottom

Sweden has long had one of Europe’s hottest housing markets, but prices have tumbled and are not set to recover for a long time, according to Danske Bank. Economists are also warning of a “false dawn,” as recent housing data suggests a slight uptick in prices.

Danske previously projected a 20% drop, peak to trough, in Swedish house prices. It has since revised that figure to a 25% dip, meaning prices are currently “still only half-way to the bottom,” according to Danske Bank’s Nordic Outlook report.

Prices are currently down by 12% from the peak recorded in February last year, according to the bank’s data.

Danske’s rival bank Nordea maintains its previous forecast of a 20% dip in house prices, peak to trough, but says that the risk is larger to the downside, rather than to the upside.

“We’re still very concerned about the housing market, and we think that there’s a lot of downward pressure still for house prices,” Gustav Helgesson, an analyst at Nordea, told CNBC.

House price data released by property statistics company Svensk Maklarstatistik Thursday showed house prices in Sweden increased for a second consecutive month in March, which was not in line with what many economists expected.

The data shows house prices rose by 1% compared with February. When adjusted for seasonality, the increase translates into a small decline of 0.3%, with house prices typically growing slightly at the start of each year.

The figure came as a “small surprise” to Jens Magnusson, chief economist of Swedish bank SEB.

“I was expecting a lower number [on Thursday],” Magnusson told CNBC, describing the positive momentum as “a little bit premature.” SEB is maintaining its forecast of a 20% drop in Swedish house prices, but with downside risk.

Nordea had also anticipated a decline in prices in the first few months of 2023.

“We’re quite surprised by the unchanged price development in the beginning of the year in non-adjusted figures … I would call this a false dawn,” Helgesson told CNBC before the latest house price data from Svensk Maklarstatistik was released. “We’re not out of the woods.”

The National Institute of Economic Research recently adjusted its forecasts to a more shallow dip in house prices, now seeing a drop of between 15% and 20% — compared with its previous projection near the higher 20% end of that decline range. Despite being more positive, its outlook is still “really pessimistic” according to Emil Brodin, economist at the NIER.

“Our forecast is the bank will increase rates again and that the house prices will continue to decline, but not as much as they did in 2000 and in the autumn,” Brodin told CNBC.

A lower volume of new listings and low transaction levels contributed to the higher-than-expected prices.

The Swedish housing market is particularly…