New statistics provide more nuanced picture of housing market

News 28 May 2019

A new Focus Report from the Swedish National Debt Office analyses price development in the Swedish housing market.

The development of the housing market affects the macroeconomy, the central government budget, and financial stability. Accordingly, tracking housing market trends is part of the Debt Office’s work that includes monitoring the business cycle and managing central government debt.

The Focus Report The Development of Housing Prices, written by head of forecasting Mårten Bjellerup and economist Lina Majtorp, analyses Swedish housing market price trends. The analysis benefits from a significant improvement over the last five to ten years in the underlying statistics. However, the report also presents new figures derived through, for example, new statistical intersections that enable tracking price trends for apartments by number of rooms and number of sales in different price ranges.

Improving our understanding of the housing market is an important aspect of the Debt Office’s forecasting for the Swedish economy and development of public finances. We look at both the long-term price development over time and the decline in prices in recent years – but also the price effects from the recent years’ new housing production upswing and macroprudential measures, says Mårten Bjellerup, Head of Forecasting, Economic Analysis Department, Swedish National Debt Office.

Greater understanding of price fluctuations in both the long and short term

A key introductory section of the report describes the statistics employed in the public debate and what they say about the state of the housing market and its development. An econometric model is used to gain the best possible understanding of the development, which is supplemented with an analysis based on the new statistical intersections.

In the longer term, housing price trends are attributable to household income and interest rates in the econometric model. The model captures an apparent structural shift that occurred when the mortgage cap was introduced in 2010, entailing a decline of around seven per cent over the long term.

Using the model to explain the rapid price fluctuations, though, such as the drop in prices in 2017, has been less successful. Thus, the supplementary analysis utilises statistics on price, sales and supply, which show that the price drop in 2017 was likely a result of the concurrent changes in supply and demand.

In addition to a better understanding of, for instance, large price fluctuations, the supplementary statistics also allow for a substantiated analysis of speculative purchases of newly constructed housing, as well as an illustration of why sales of apartments in higher prices ranges are affected much more negatively than others during a general price decline in the market. We hope that the report will contribute to broader a discussion of housing prices, says Lina Majtorp, Economist, Economic Analysis Department, Swedish National Debt Office.

The model indicates lower price increases to come

The econometric model used in the report indicates that there is likely to be an appreciably slower rate of increase in the development of housing prices than in the last 20 years, even if the general development ahead were to be more favourable than expected. This expected trend break in the price development is due to the expectation of a slower rate of increase in incomes while mortgage rates may rise.

About the Debt Office’s Focus Reports

The Debt Office’s Focus Reports contain analysis and reviews of a number of different topics within the scope of the Debt Office’s activities. We aim to improve understanding of the focus of our operations and contribute to further discourse.

The Focus Report The Development of Housing Prices was published in Swedish on 28 May 2019. The publication date for the English version of the report is 15 November 2019.