Pressure released from Norwegian property bubble in May

The first signs of a topping out of the Norwegian property market may have come in the latest monthly residential property figures, which suggest prices rose just 0.2% in May.

Adjusted for seasonal variations the gain was just 0.1% over the month. That was a sharp fall from the 1.2% price increase reported last month by engineering consultant Pöyry on behalf of real estate agents and sector organsiations such as the Norwegian Association of Real Estate Agents (Norges Eiendomsmeglerforbund, NEF).

Prices for detached properties remained unchanged. Prices for shared property were up 0.1%, and for apartments they were up 0.3%.

The figures represent a sharp fall on the rate or price increases recorded in April, and are said to be the result of a greater supply of properties hitting the market. Despite this, the average price per square metre is still running 6.2% higher than the average for all of 2011.

The average time that a property spends on the books of property brokers also continues to fall. They sold fastest in Trondheim – just 13 days, the figures suggest. Bergen (13 days) and Oslo (14 days) also saw faster turnover – figures for these three key urban markets in April were, respectively 16, 14, and 15 days.

Average price per m2 in Norway


(Source: NEF)

An easing of the local residential property market would be good news for the country’s central bank, Norges Bank, which has been struggling to head off a property price bubble through higher rates, while manufacturing and other sectors of the economy have complained of an excessively valued NOK against other key currencies.

Øystein Olsen, governor of Norges Bank, noted this week at a hearing by the  Standing Committee on Finance and Economic Affairs of the Storting (Norwegian Parliament) that the key interest rate was cut in March because the Bank felt that other central banks of countries deemed key trading partners were committed to maintaining low interest rates of their own, and that growth prospects looked weak abroad.

The Bank cut its key rate by 0.25% to 1.5% at the time. However, Olsen also noted the ongoing strength of the domestic economy, which grew by 2.4% last year, and the dangers presented by adopting a low interest rate policy over a longer period of time.

“Weight is given to the risk that a prolonged period of low interest rates can lead to elevated risk-taking and excessive debt accumulation in the household and business sector. Such imbalances may have spillover effects further ahead, with substantial effects on output and employment.”

He added: “House prices are at a historically high level. The rapid growth in household income has been a key factor behind the rise in house prices for some time. In recent years, this tendency has been amplified by high immigration and hence strong population growth.”

“In spite of vigorous building activity, the number of completed dwellings is still low in relation to population growth. This housing gap has developed over several years and is pushing up house prices. A tight labour market and low interest rates are pushing in the same direction.

“The rise in house prices and the rate of debt accumulation are closely linked. Since the mid-1990s household debt in Norway has risen appreciably faster than income. On average, household debt is now twice as high as disposable income.

“A rising share of households are facing a debt burden that makes them vulnerable when the interest rate again moves up to a normal level or if economic developments in Norway should take a turn for the worse. In such a situation, many households might find it challenging to service their debt and may reduce household spending. A pronounced fall in household demand will have a negative impact on corporate earnings and enterprises’ capacity to service loans from Norwegian banks.”

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