After rapid price growth over the past few years, Norway’s housing market is now cooling off. Home sale prices have depreciated beyond expectations, raising concerns about a bursting bubble.
According to the Norwegian Home Builders’ Association (NHBA), sales of new homes fell by 33 percent year-on-year in August. “We are concerned with the downturn in the sale of apartments,” said the head of NHBA, Per Jaeger.
After prices grew by more than 40 percent in just over two years, prices have dropped sharply in Oslo, falling by 0.3 percent in August, following a 2.8 percent plunge in July, a 3.1 percent dip in June, and a 1.4 percent decline in May.
“In July there has been a lot of sales, especially in Oslo where about 60 percent more homes have been sold than in July last year,” Christian Vammervold Dreyer, CEO of Real Estate Norway, said in August.
The housing market has turned around after the Norwegian government imposed extra restrictions on banks’ mortgage lending for 2017. Among the new rules, borrowing was capped at less than five times a householder’s income. According to 2010-2014 statistics from Statistics Norway and Norges Bank, 14 percent of Norwegian households had a debt-to-disposable income ratio of over 500%. With a household debt ratio of over twice their disposable income, Norwegians are now among the most indebted OECD countries, out-debted only by the Dutch and the Danes.
Norges Bank had highlighted high household debt as the key vulnerability of the Norwegian economy in their Financial Stability Report of 2016, followed closely by persistently strong housing prices as the second highest vulnerability. A clear slowdown in house prices was already predicted by the experts when the government addressed bubble-fears with their new regulations, but not a decline. SEB economist Erica Blomgren then told Reuters that “the difference from current rules are not that big” and that the new regulations “may help to curb housing prices, especially in Oslo, but nothing indicates that these rules will lead to a decline in housing prices.”
However, the outlook has now changed as sellers in the Norwegian capital have flooded the market.
“The 12-month growth in the big cities, and especially in Oslo, is significantly lower than for a long time. We expect a continued decline in the capital in the next few months, and moderate price developments will persist in much of the country,” Real Estate Norway’s Christian Vammervold Dreyer concluded in an August press release.
This article appears also in the 2017 issue of Nordic Business Report. Get your digital copy from the link below.
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