Norway Household Debt, House Price Surge Adds Pressure on Rates

Household credit growth and house price gains accelerated, adding to pressures on Norway’s central bank to raise its benchmark interest rate to prevent a credit- driven real estate bubble.

Household credit growth rose an annual 7.2 percent, the highest since February, compared with 7.1 percent in June, Statistics Norway said today. In a separate release, the Association of Norwegian Real Estate Brokers, known locally as NEF, said home prices rose an annual 8.1 percent in August.

“Household debt continues to rise faster than incomes causing debt burdens to increase from an already high level,” Ida Wolden Bache, a senior economist at Svenska Handelsbanken AB in Oslo, said in a note to clients. “This remains a concern for Norges Bank.”

Overall credit growth rose an annual 6.9 percent in July, compared with 7.1 percent in June, as borrowing by non-financial enterprises slowed to 6.7 percent from 7.1 percent, SSB said.

Norway’s central bank stuck to a plan last week to raise rates as soon as December as a boom in the housing market fuels concern the world’s third-richest country per capita may be facing a property bubble. Policy makers, who have cut the bank’s main rate by 0.75 of a percentage point since December, left the rates unchanged at 1.5 percent on Aug. 29.

Low rates helped push house prices to records and stoked demand as Europe’s second-largest oil exporter benefits from record offshore investments and unemployment of 3 percent. The surge in the petroleum industry will boost nationwide wages by 4 percent, according to central bank estimates.

Average Gains

So far this year house prices are on average 7 percent higher than in the same period last year, NEF said in its report. If prices remain stable for the remainder of the year, the average price growth for 2012 will be 8.1 percent.

House price gains prompted Finance Minister Sigbjoern Johnsen in July to call for tougher mortgage lending standards. The country’s Financial Supervisory Authority also last year pushed through guidelines for banks, urging them not to grant loans that make up more than 85 percent of a property’s value.

Household debt in Norway will rise to more than 200 percent of disposable incomes next year, according to the central bank.

The country’s FSA has said the overheated property market is the biggest domestic threat to the economy.

To contact the reporter on this story: Josiane Kremer in Oslo at jkremer4@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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