Nordics housing markets seeing a quick rebound

The impact of the coronavirus on the Nordic residential markets has been limited , as prices only temporarily dropped in March and April. Specifically, demand for housing (particularly terraced / vacation) increased as reflected by a rebound in transactions in May and June . In the short to medium term, higher unemployment and subdued income prospects are likely to slow demand . Meanwhile, an ultra-accommodative monetary policy and softened macroprudential rules , as well as relatively muted construction activity will limit downward pressures on prices. Despite resilient construction activity in 2019, housing supply remains limited in Denmark. Transactions rebounded in May and June after the lockdown, reaching new record highs, largely thanks to strong demand for v acation homes . Dynamic sales pushed prices higher from the dip in March to new highs. Yet, a surge in the unemployment rate to 5.6% in May , close to the peak of the financial crisis, along with weaker wage prospects may undermine future demand, despite easy credit (removal of countercyclical capital buffer - CCyB). In Norway , after slightly slowing, prices accelerated again in June on the back of a decline in unemployment, an improvement in consumer sentiment and favourable credit conditions. Even if the unemployment rate is set to level out at a higher level, demand for housing should remain buoyant . The Norges Bank key rate is expected to stay at 0% (after a cut from 1.5%) until December 2022 and the CCyB (cut by 150bp) at 1% through 2021. In Sweden , housing prices increased in June (+0.4% MoM) after falling in March and April. Yet, higher unemployment (9.8% in June) will weigh on housing demand given subdued hiring plans. On the upside, low interest rates (QE of SEK500bn, removal of CCyB), reduced supply of new housing and improving consumer sentiment should limit a downward trend for prices. Only in Finland , prices continued to be dampe ne d in May (-0.4% MoM) with transactions plummeting to 2.6k in May (-30% YoY). Meanwhile, price dynamics in Greater Helsinki continued to be robust, especially demand for terraced houses (+0.5% MoM in May, +4% in April). Unemployment increased over the spring due to restrictive measures to contain the pandemic , hampering economic activity. Subdued construction activity along with low interest rates (removal of systemic risk buffer, lower requirements for credit institutions) should offset somewhat the effect of labour market weakness on prices.