This downturn is not surprising given the 'dysfunctional' nature of the market, according to Stefan Ingves, the former governor of Sweden's central bank, the Riksbank.
"As of November we are seeing prices nationally in Sweden fall 13% from the peak in February. That's the largest downturn on the housing market since we had a big economic crisis in the nineties," Gustav Helgesson, an analyst at Nordea, told CNBC.
"This took many households by surprise ... and I think that Swedish households … have been struggling to adjust to this cycle and foresee these very quick and dramatic rate hikes from the Riksbank," Helgesson said. Thomas Veraguth, head of global real estate strategy for UBS Wealth Management, described the correction as "a natural adjustment that is mainly explained by macroeconomic factors."A further policy rate increase is anticipated for February, with the benchmark widely speculated to hit 3%, leading economists to predict a further downturn in property prices."This is as a direct consequence of the Riksbank's increased interest rate. They've increased from 0% to 2.
But there is downside risk to the 20% estimate, according to the chief economist of SEB, Jens Magnusson. "We had about 20% increases during those two pandemic years, so obviously that is the first thing that will go now and I expect pretty much all of that to disappear and to decrease," Magnusson said.
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