STOCKHOLM: The price of single family homes in Sweden rocketed 17% in the first three months of the year, data showed on Wednesday, increasing concerns that the market is overheating.

The rise was a record, according to Svensk Maklarstatistik, an association of real estate agents, since it started collecting data in 2005.

Apartment prices rose 8% over the same period.

“Big price rises are usually followed by a recoil,” Hans Flink, head of sales at Maklarstatistik said. “I wouldn’t call it a bubble, but there could be a reverse.”

Sweden’s housing market has been a headache for authorities for decades. The population has increased rapidly, especially in cities like the capital, Stockholm, and construction has failed to keep up.

The rental market is highly regulated and widely seen as dysfunctional. At the same time ultra-low interest rates have pushed up prices and borrowing levels, leading the central bank, among others, to fret about the threat to the banking system.

The pandemic has failed to cap price growth, with the economy coping relatively well, partly due to the fact that Sweden has not adopted the kind of strict lockdown measures taken by much of Europe.

But with the country in the middle of a third wave of infections, uncertainty remains high.

Even without another economic shock, borrowers may face higher costs. The central bank has said its benchmark rates are on hold, but globally, markets spy a potential pick up in inflation on the horizon and longer term international bond yields have risen.

Ultra-low mortgage rates – the average is around 1.3% for a floating-rate loan – may also start to rise. Furthermore, the financial watchdog has said it will restore stricter mortgage repayment rules, suspended at the start of the pandemic, later this year.

“People who are chasing after villas should consider that low rates and a shortage of houses for sale can push up prices to levels that are not always sustainable in the long term,” Marcus Svanberg, CEO at insurer Lansforsakringar’s real estate arm, said.

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