Nordea On Your Mind:
Hiccups in Norway and Sweden, business as usual in Denmark and Finland
In the March 2017 Nordea On Your Mind (Nordic housing bubble?), we reviewed Nordic housing markets and concluded that house prices were high, but for good reason, underpinned by growth in disposable income and low interest rates. Since then, Denmark and Finland have largely stayed on trend, showing fairly stable housing markets. Norway and Sweden have seen sharp house price corrections from lofty peak price levels in 2017.
Correction driven by supply and affordability issues
Apartment prices in capitals Oslo and Stockholm are down some 12% and 15%, respectively, to date from the peaks. Demand for housing is still there, with strong employment and continued low interest rates. But Sweden and Norway have seen absolute prices rise to levels where marginal buyers have problems with affordability, while at the same time new supply (boosted by the previous price rally) is coming into the market. New mortgage lending regulations had a major negative impact in Norway, as disposable income multiples and minimum equity ratios were harder to meet given such high house prices. In Sweden, new mandatory mortgage amortisation rules will come into effect in March, in the midst of a market downturn.
Our view: Slight further downside, levelling out in H1, more stable in 2019
We at Nordea Markets expect Norwegian and Swedish residential property prices to fall another 1-3% before stabilising in H1 2018, with a more flat outlook during 2019. The pent-up supply in the secondary market owing to uncertainty and hesitation, as well as the supply from newbuilding, needs to be cleared, after which demand should again be fully anchored by disposable incomes and low funding costs. The greatest risk remains any form of interest rate shock, which would hurt housing markets along with the economy in general.
Housing headache hurts the economy
The Nordea Markets view is that the wobbly housing markets will have a tangible negative impact on GDP growth in Norway and Sweden, taking into account effects on both private consumption and residential construction output. Norway is on a different growth trajectory, from a lower starting point and recovering from the oil price crash in 2014, thus less vulnerable to housing headwinds. Sweden has, after many years of strong growth, become more dependent on continued low interest rates for its economic output.
What the experts have to say
In addition to an introduction from Nordea Global Co-Head of Corporate & Investment Banking Mathias Leijon, we interview Daniel Kjørberg Siraj, CEO of Norwegian home developer OBOS, Erik Olsson and Johan Nordenfelt from Swedish leading estate agent Erik Olsson Fastighetsförmedling, Michael Skytt, CEO of Nordea Hypotek (our Swedish mortgage lending business), and our macroeconomists Erik Bruce and Torbjörn Isaksson
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