(Bloomberg) -- The Riksbank expects Sweden’s home prices to fall more than it has forecast so far, driven down by a string of interest-rate hikes.
The largest Nordic nation is one of the front-runners in the global housing downturn, with a nominal drop of about 14% from a peak earlier this year. The slipping property prices are fueled by soaring inflation and increases in borrowing costs intended to retain confidence in the central bank’s inflation target.
The Swedish central bank now sees home prices falling 19.9% by late 2023 from their peak earlier this year, versus the previous estimate of 18%, according to Riksbank data. That’s as the policy makers raised their key interest rate by 75 basis points to rein in inflation and signaled more is to come.
Read More: Riksbank Sees More Hikes After Rate Salvo on Cusp of Recession
The pain is so severe in Sweden in part because households tend to have large loans relative to their incomes and because higher central-bank rates are quickly transmitted to their borrowing costs as most loans have rates fixed for a year or less.
Home prices “will continue to fall in the coming years, to around the level prevailing prior to the pandemic,” the Riksbank said. “There is a risk that the process of adapting will be more abrupt and that housing prices will fall more than is being assumed now.”
(Updates with Riksbank data, chart.)
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