An in-depth review of the Swedish and Norwegian housing markets

• Sweden and Norway are in a bind because inflation is high, but their housing markets are under pressure. Their centrals banks are uncertain about whether to hike rates to tame inflation or to pause to save their respective housing markets.
• We forecast house prices in Sweden will fall by 25% from their peak-to-trough, though acknowledge there are upside risks to this if Covid has fundamentally changed the price dynamics in the housing market. We focus on Sweden because the housing difficulties there are especially acute.
• We expect the Riksbank to keep raising interest rates to tackle soaring inflation, but if the housing market weakens sharply there are risks that the hiking cycle will end early.
• From an FX strategy perspective, we think housing problems are likely to see SEK and NOK continue to underperform, even after the significant sell-off year-to-date. This may be the year when both EUR/SEK and EUR/NOK trade above 11.5.