Real estate has been a structural joy ride for decades in Sweden, alongside gradually falling interest rates (chart 1). In gross return terms, the OMX real estate equity index delivered a staggering 55X, or 20% per year, from 2000 until the peak in November 2021 (chart 2). The rate sensitivity goes both ways, though, and as inflation picked-up suddenly and interest rates rose sharply, the sector underperformed accordingly.
Thus, the history clearly suggests that any view on over-/underweighting real estate equity, should be backed-up by a view on where rates are heading. That is indeed also very much supported by the most recent development: as noticeable rate cuts has been priced in, from late October and onwards, the real estate index has appreciated by around +45% since the lows!
