“Renovations in the housing market have declined for two consecutive years. We expect a slow recovery in the second half of 2024.”
We expect the Swedish economy to turn around in the second half of this year. Inflation is now decreasing rapidly in Sweden and the central bank (“Riksbanken”) is expected to make several interest rate cuts in 2024-2025. But even if GDP starts to grow again, it will be at a slow pace. Resource utilization in the economy will be low in 2024, which means that Sweden will be in recession throughout the year. In 2025, growth will increase and the GDP gap will become less negative, which means that we are moving towards the end of the recession. In 2026, growth increases further and the peak of the business cycle could occur in 2026-2027.
The development of Swedish housing construction is worrying. The effect of the interest rate increases is very strong in Sweden because of high household debts and that the mortgages on average have about 60 percent variable interest rate. Between the years 2021 and 2023, we experienced a fall in starts for new dwellings by 70 percent. We believe that the level of housing construction will remain low in both 2024 and 2025, although we will see a marginal improvement from low levels when the macroeconomic situation stabilizes. In 2026 we forecast that the starts will increase a bit more but will still be at a lower level than during the years 2020-2022.
Regarding renovations in the housing market in Sweden, we come from the pandemic years 2020-2021 where there was a peak in home improvements which largely saturated the demand in the short term. When society then opened up, people spent their money on entertainment and culture instead. This initiated a downturn in housing renovations, which was then reinforced by the economic downturn and the reduction in moving activity. This resulted in two consecutive years of decline in R&M, 2022 and 2023, and we project that a slow recovery starts in the second half of 2024.
Investments in the R&M market will turn around earlier than for new construction, where investments and activity come with a lag compared to sales and the start of construction. We also assess that the turnaround for the consumer side will be slightly stronger than for professionals, but then the consumer side has also decreased significantly more during the years 2022-2023. The turnaround is also taking place from low levels and the level of investment is therefore expected to return to the historical average only in 2026.
