Sweden's residential fundamentals provide continued support

Previous forecasts pointed to a marked deceleration in the pace of increase in Sweden's population in the age group 30-70 years, an age group that typically drives housing demand. 

Statistics Sweden's population projection from this spring indicates that the population will continue to grow at broadly the same pace as in recent years. This is a clear upward revision to the previous projection, which pointed to stabilisation. 

The new population projection supports the view that demand for housing will also rise in future. In light of the recent massive inflows of refugees, also this projection will most certainly be revised up later on.

"Residential investment activity is now growing rapidly. Over time, this implies an expansion of the housing supply which should dampen home price growth. On the other hand, it will not necessarily dampen household credit growth to any significant extent as people who are moving to newly-built tenant-owned properties often need a loan", says Nordea Bank.

However, the trend in residential investment is important and the experience from other countries is clear, in almost all cases significant home price declines have been preceded by sharply rising housing investment.