When Madeleine Eiswohld decided to move in with her boyfriend last year, she never expected to find it so difficult to sell her apartment. It’s a cozy studio, with lots of natural light, in Huddinge, an increasingly desirable suburb of Stockholm.
But the timing was all wrong. She listed her place as Sweden’s housing market was tumbling through its most severe downturn in three decades. After only a few people viewed her apartment, Ms. Eiswohld lost hope that she would recover the money she had paid for it less than two years earlier.
“It’s been very scary,” Ms. Eiswohld, a 28-year-old visual merchandiser, said in her living area recently. In the end, the apartment sold last month for 1,955,000 krona ($188,000), about 4 percent less than what she had paid.
It could have been worse. From her kitchen table, she can see an identical apartment across a courtyard that recently sold for less.
House prices in Sweden plummeted about 15 percent from their peak last March to the end of last year, and have mostly plateaued since then. The war in Ukraine, a European energy crisis and a global surge in inflation that has pushed up interest rates put an abrupt end to a run-up in Swedish house prices during the pandemic, when people outbid one another to move into larger homes.
Central banks around the world have spent most of the past year in a struggle against inflation. After sharply raising interest rates, major central banks, including the U.S. Federal Reserve and the European Central Bank, are warning that inflation may persist longer than expected. Just as some banks have been caught off guard by quickly rising interest rates, economists are nervously eyeing global housing markets for signs of distress. Property prices have been heading south in Britain, Germany, the Netherlands, Canada, Australia and the United States.
But few places have been hit as hard as Sweden, which features an incendiary mix of high levels of household debt and the widespread use of variable or short-term fixed rates on home mortgages loans.
Three-quarters of new loans in Sweden have either a variable rate or a fixed rate for less than a year, according to the latest data from the European Mortgage Federation. In the eurozone, the average is about 25 percent, and it’s a long way from a typical American mortgage, where loans are often fixed as long as 30 years.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
So Swedish households quickly feel the impact of rising interest rates, pushing them to cut spending to pay higher mortgage costs. Since April, Sweden’s central bank, the Riksbank, has raised interest rates to 3 percent from zero. And analysts expect the rate to keep rising amid signs that inflation, which rose at an annual rate of 12 percent in February, is becoming embedded in the economy.
“This year is a lost year for Swedish households in many ways,” said Annika Winsth, an economist at Nordea, a bank that predicts that gross domestic product and private consumption will fall 1.8 percent this year. The European Commission forecasts that Sweden’s economy will be the only one in the European Union to contract this year.
The severity of the housing market slump really depends on your vantage point. The recent decline has pushed the market back to about prepandemic levels, after a period when prices rose 20 percent a year. From that perspective, “it’s not bad prices,” said Georgio Hadad, a broker in Huddinge for Fastighetsbyran, a real estate company. “But once you’ve tasted this 20 percent increase, it’s bad.”
It has been a long time since Sweden experienced this kind of housing downturn — not since the 1990s, when a housing bubble burst and took down the banking system. Strict reforms later helped Sweden through the 2008 financial crisis.
Ms. Eiswohld, who sold her apartment as prices were sliding, had the misfortune of apartment shopping in the spring of 2021, when house prices were on an upswing.
“I scrolled and scrolled” through an online real estate site, she said, “but the prices were so high.” She finally found her place in Huddinge after spotting a listing, getting a private early viewing and putting in a bid instantly, offering more than the asking price.
In those days, when people were flocking to the suburbs, it wasn’t uncommon to have 40 to 50 people view one house, said Mr. Hadad, especially those seeking detached houses with gardens. Minutes after advertisements were posted, buyers would make large bids and ask for the listing to be taken down.
Now, it’s a struggle. “The buyer knows it’s their market,” Mr. Hadad said.
My Mirza and her husband, Jonas, both 32, viewed the drop in prices as an opportunity to move to a larger home with their infant son, now 10 months old. Encouraged by the central bank’s prediction that prices could fall 20 percent, they sold their two-bedroom apartment in September and then watched and waited.
“We looked for a 20 percent drop,” Mr. Mirza said “We were not in a rush.”
They eventually found what they wanted, and in February, they signed a contract for what they’ve nicknamed “The Big Red House.” It is a big expansion: Almost two and a half times the space of their previous apartment, with four bedrooms, a conservatory and a garden. They paid 6.9 million krona, about 100,000 krona less than the asking price and about 15 percent less than what a house that size might have sold for a year ago, Mr. Hadad said.
But even for buyers, there is still financial uncertainty. In Sweden, mortgage rates become final with the bank the day you get the keys and move in. The Mirzas have strategically chosen their move-in date: April 25, one day before the Riksbank announces its next interest-rate decision.
The past two months have offered some respite for Mr. Hadad. The new year brought some buyers back to the market. Across Sweden, apartment prices rose slightly in February and house prices plateaued, according to Svensk Maklarstatistik, which publishes housing statistics. (The Swedish rental market is heavily regulated, leaving a very limited supply of rental apartments in the major cities.)
That doesn’t mean the downturn is over. “I have a hard time seeing that prices will turn and go up again,” Mr. Hadad said. “Not at the moment. There’s still too much uncertainty.”
Maria Wallin Fredholm, an economist at Swedbank, said the seasonal trend of people returning to the market after the holidays was probably masking the downward trend in house prices.
“For households, it’s just really uncertain about how much higher mortgage rates will go,” she said. “Until this uncertainty subsides, there’s going to continue to be fewer transactions being done with lower bidding activity.”
House prices could keep falling into the summer, she added, and Swedbank forecasts that interest rates will rise to 3.75 percent in June and stay there for a while.
Erik Selin, the founder of Fastighets AB Balder, a large property development company based in Goteborg, Sweden’s second-largest city, dismisses the idea that the current downturn is a crisis. He began investing in real estate in 1992, when he was 24. His company now has more than 1,800 properties, mostly in Sweden, Finland and Norway, and many are apartment blocks.
“If you have a crisis or a downturn, the perception is that the risk is high,” he said. “And when everything is good, the perception is that the risk is low, but it’s actually the other way around. You should really be scared when everybody thinks things are good.”
Accordingly, he’s not scared, despite an 11 percent drop in apartment prices across Sweden over the past year. A drop of another 5 or 10 percent would not be “that dramatic,” Mr. Selin said, because underlying demand for housing in cities is strong.
But these days, it’s not business as usual. His company has put off starting new developments because of the combination of higher construction costs, falling property prices and higher interest rates.
“It didn’t make sense to invest a lot in construction,” Mr. Selin said. “We haven’t started anything new for roughly a year, maybe even more. That’s a big change.”
When will they restart?
“Its extremely hard to know,” he said.
Christina Anderson contributed research and reporting from Bastad, Sweden.
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