(Bloomberg) -- Swedish homebuilders should start to recover later this year, boosted by the central bank’s decision to cut interest rates before its Eurozone and US peers. 

The value of orders is expected to tick up for Sweden’s three largest homebuilders, Skanska AB, Peab AB and NCC AB, brightening the outlook for the industry in the Nordic country. “I would expect new starts to gradually pick up through 2024,” Kepler Cheuvreux analyst Albin Sandberg said in an email, while cautioning that it will “probably take some time” before that turns into stronger demand for new builds.

On May 8 the Riksbank cut its benchmark interest rate for the first time in eight years, lowering its policy rate by a quarter point to 3.75% and saying it could be reduced twice more in the second half of 2024. Sweden’s central bank is the second among advanced-world peers after the Swiss National Bank to lower borrowing costs, spurring hopes that the Swedish economy will begin a recovery later this year.

Sandberg expects JM AB to benefit the most from the rate cut, followed by Peab and Skanska and to a lesser extent NCC, based on the companies’ varying exposure to residential construction. 

Sweden’s high proportion of loans with rates fixed on short terms meant the global tightening campaign had an outsized impact on the Swedish economy, sending housing construction activity plunging. Homebuilders were among the most visible groups in Swedish bankruptcy statistics over the past months as raw material costs and lower demand hit earnings.

But some encouraging housing trends are emerging already. An indicator from data provider Byggfakta published last month was largely unchanged in March, signaling that activity in the sector is stabilizing following two years of sharp declines from August 2021.

To be sure, borrowing costs still remain far above historic levels in Sweden and a supply glut of homes for sale may limit a volume rebound in the near-term, Bloomberg Intelligence analyst Iwona Hovenko said. 

“Though Riksbank’s rate cut may be the first step in the right direction and help lift buyer confidence, more cuts may be needed to revive the market and meaningfully boost the prospects for Swedish residential-property developers,” Hovenko added.

--With assistance from Niclas Rolander.

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