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Swedish home price set to continue rapid rise

SEB’s Swedish Housing Price Indicator was unchanged at 67 in August, one point below the all-time high from March this year. According to the survey, 74 per cent (75 per cent) of Swedish households expect home prices to be higher in 12 months’ time while only 7 per cent (8 per cent) foresee lower prices. 

Home price developments have accelerated since the introduction of zero rate policy in Sweden last fall and have now better caught up with the Indicator which has been fairly stable at historically high levels during most of the year. There is no dampening in sight, with current levels of the Housing Price Indicator suggesting home prices will continue to increase rapidly during the second half of the year, and that they could even pick up further from the current strong pace (15 per cent y/y).

Home price optimism remains underpinned by a very subdued outlook for rates. Although households continue to forecast a repo rate above current levels in a year’s time, expectations have gradually declined as the Riksbank has continued to ease policy. The Riksbank’s July surprise 10 basis points (0.1 percentage points) repo rate cut to -0.35 per cent was reflected in a further decline in households’ repo rate expectations to 0.13 per cent (July survey 0.22 per cent).

Few plan to fix rates

Low rate expectations are also reflected in the very limited appetite for fixed rates. Only 3 per cent of households plan to fix rates in 3 months, near record low levels and down from 5 per cent in July.  Meanwhile, separate data during summer show a continued acceleration in household borrowing. This means that both the level of the indebtedness and the pace of the continued build-up are at troubling levels for the Riksbank and the FSA, though with the latter having the main responsibility for macro prudential measures.

SEB defines the Housing Price Indicator as the difference between the percentage of respondents in a survey who believe prices will rise in the coming 12 months and the percentage who believe prices will fall.