Swedish home prices likely to continue with upward trend in near-term

Sweden’s National Institute of Economic Research survey shows that consumers, on an average project a 5 percent rise in home prices in the coming 12 months. Consumers appear to be highly optimistic, noted Nordea Bank in a research report. For instance, 97 percent of consumers expect rising or flat prices, while 3 percent of consumers expect prices to decline. A little over 50 percent of households project that prices would rise by 5 percent to 10 percent or more.

Historically, interest rates and home prices have been correlated closely. Mortgage rates stopped declining almost two years ago. This should have hurt the rise in prices. But there might be other factors leading to higher home prices, stated Nordea Bank.

Overall, the households’ expectations for home prices imply a continued upward trend in the near term. Moreover, their expectations of higher interest rates might drive prices higher if rates do not rise and the financing rate drops as a result, particularly as home prices appear low given the interest rate level. Meanwhile, households’ interest rate expectations appear to be adaptive, implying that the financing rate might rise slightly, and house prices drop, if mortgage rates rise slightly, stated Nordea Bank.