Sweden is one of the countries where residential prices have been growing since late 1990s. On average, residential prices were growing by 6.5% p.a. between 1995 and 2017 with a few exceptions after the financial crisis of 2008 and during debt crisis in Europe in 2011.  In the late 2017 and following 2018 residential prices were stagnating. Can these fluctuations in prices be explained by fundamental factors of supply and demand?

The aim of this paper is to investigate the effects of macroeconomic factors such as population, disposable income, dwelling stock and interest rate on residential price dynamics. Estimation is done by applying panel data methodology on regional data for major Swedish cities for the period of 1995-2018. 

Results suggest that the long run dynamics of residential prices in Sweden has autoregressive character, and to certain extent might be explained by changes in fundamental factors such as population, disposable income per capita, dwelling stock and mortgage interest rate.  

Even though non-fundamental factors like, for example, rental regulations, valuation and banking policies have received attention in the research literature, the impact of these factors is not well described. Therefore, this paper also provides a deeper insight into different institutional factors that might create fluctuations in prices on residential markets.