Trine Dahl, a broker at Norway’s second-largest realtor DNB Eiendom, says the number of potential buyers at her viewings has fallen by 50 percent in the past year and she now has to make as many as 15 calls to sell an Oslo apartment. A year ago, Dahl says, selling was as easy as sitting at a cash register.
“The change came in the summer and since August and September, it has been really different,” Dahl said in an interview at DNB Eiendom’s office on Oslo’s upscale west side. “It’s very hard to say which property is a difficult house to sell and which is easy. In a normal market, that’s easy to do.”
Norway’s housing market, which Nobel Laureate Robert J. Shiller described in 2012 as being in a bubble, is now deflating faster than even the central bank had predicted after regulators introduced a slate of measures to cool demand. After home prices doubled over the past decade, fueled by low interest rates and surging oil wealth, they’ve slid for two consecutive months raising concern that real estate could be in for a hard landing amid record household debt.
“Regulations have effected the housing market at an earlier stage than we expected,” said Kjersti Haugland, an analyst at DNB ASA. (DNB) The bank, Norway’s biggest lender, still sees a “relatively soft landing,” she said.
When it comes to residential property, Norway is among countries such as Canada, Australia and Switzerland considered “high-flyers” in the past few years, according to Goldman Sachs Group Inc. These markets have benefited from robust recoveries as well as a significant dose of “inadvertent” monetary policies from the world’s largest central banks. Norway has seen some of the most dramatic increases, with house price gains of close to 30 percent since the first quarter of 2009, compared with increases of more than 20 percent for Switzerland (SZRES) and almost 40 percent for Israel, according to an Oct. 23 Goldman Sachs report.
The average home price in Oslo was about 4.55 million kroner ($740,000) last month, according to a report by real estate brokers, versus the $806,000 in New York as of Sept. 30, Real Estate Board of New York figures show, and 331,338 pounds ($529,743) in London.
Surging Norwegian prices, driven by low borrowing costs, have helped fuel consumer debt to twice disposable incomes, prompting warnings from policy makers and economists that the development is unsustainable.
In response, regulators introduced measures to cool demand, including capping loan sizes at 85 percent of a property’s value as well as higher capital requirements and risk weights on mortgages. House prices slid a seasonally adjusted 1.5 percent in October from a month earlier, dropping for a second month, according to data from the Norwegian Real Estate Agents Association.
Nordea Bank AB (NDA), the largest Nordic lender, last week forecast that house prices will fall 15 percent to 20 percent over the next two years, forcing the central bank to cut rates twice next year, from the current 1.5 percent.
Nordea’s predictions would mean a hard landing for the housing market, dragging down residential investments and private consumption, DNB’s Haugland said. It would take a series of rate increases and a sharp downturn in house prices to spur a crisis, which “is not in the cards,” Haugland said.
DNB shares slid 1.2 percent to 104.4 kroner in Oslo, paring this year’s gain to 48 percent.
Psychology is overtaking the market, said Terje Halvorsen, chief executive officer of DNB Eiendom, a subsidiary of DNB. People have become cautious, setting off a domino effect that is slowing activity in the market while they wait to see what will happen, he said.
There were 3,138 more residential properties on the market in October than a year earlier.
“Realtors have to be more skilled in finding the right buyers,” he said. “Patience and creativity, along with the ability to soothe both the sellers and buyers about the uncertainty will come in handy.”
The average number of days houses spent on the market has increased to 33 in October, 5 more than a year earlier, according to the Real Estate Agents Association. During the boom, that number was as low as 12, according to DNB Eiendom.
Norway’s capital saw properties spend 9 more days on the market last month, compared to October 2012.
Central Bank GovernorOeystein Olsen has warned about housing imbalances, even as low interest rates abroad have forced him to keep rates at near a record low to avoid spurring gains in the country’s currency. Olsen is now unconcerned about the effects of a housing slump.
The economy can withstand house price declines “over a longer period,” Olsen said in an interview at his office on Oct. 29, indicating the bank will avoid policies that drive up the property market. The bank signaled in September it will move toward higher rates as early as “summer” of next year.
Growth in Norway’s $500 billion economy is slowing as household debt burdens curb private demand and after persistent krone appreciation last year hurt exports. Mainland gross domestic product, which excludes oil and gas production, will expand 1.75 percent this year, the central bank forecast in September. In 2012, GDP by that measure grew by 3.4 percent.
Meanwhile, banks including DNB, Norway’s largest lender, have raised mortgage rates this year, increasing revenue and helping cool housing.
Norway, like Sweden, plans to impose core capital requirements on banks that exceed those set by European and international regulators. These include targeting core capital requirements for its banks of 10 percent of risk-weighted assets by July next year, up from 9 percent. For eight systemically important banks, the target will rise to 11 percent in 2015 and 12 percent in 2016.
While Norway’s central bank and financial regulator work to fight imbalances in real estate, newly appointed Finance Minister Siv Jensen has asked the Financial Supervisory Authority to evaluate the effects on banks and homeowners of guidelines in place since 2011 that cap mortgages at 85 percent.
The ministry wants an assessment of whether an outright rule would function better than a guideline in regulating the loan limit.
Before the September election, the Conservative-led coalition had promised to ease mortgage standards. The new government has also proposed tax breaks to encourage households to save more and help Scandinavia’s richest economy tackle its record private debt load.
Charly Giertsen, a mother of five-year-old twins, recently spent six months shopping for the right place in east Oslo.
After losing in a handful of bidding wars in June for apartments that sold for as much as 400,000 kroner above the asking price, she found a two-bedroom property for her family for 3 million kroner in September.
When it came time to sell her one-bedroom apartment, Giertsen’s property broker at iHus had advised her to plan for one viewing, estimating that about 20 people would show.
“We had only three people that day and then had to hold private viewings for four others before we started getting offers worth considering,” said Giertsen, who works in the travel industry. “The property broker had told us they had been selling with just one viewing but later he said that we probably should have planned for two or three.”
Brokers have had to recalibrate after more than five years of a booming market where homes sold for as much as 50 percent above the asking price. During the peak, DNB Eiendom’s Dahl said she sold a property outside of Oslo for 4 million kroner after seven bidders drove up the 2.5 million kroner asking price.
Christoffer Askjer, a partner at broker Sem and Johnsen Eiendomsmegling, used to get calls at 6 a.m. from frantic buyers with bids. He’s no longer seeing the same froth.
“The motivation from buyers isn’t there,” he said. Sem and Johnsen target the middle to upper price segment in the Oslo housing market and has had property sales valued at 5 billion kroner so far this year. “It’s hard to be optimistic because we’re in a transition period where we have lower activity.”
Both Askjer and his counterparts at DNB Eiendom expect business will pick up in January even as prices continue to slump. More sellers, frustrated after holding several viewings with no viable offers, are taking their properties off the market with hopes that there will be more interest in the new year, they said.
“If everyone puts their properties back on the market next year, we could have a complete transition into a buyer’s market,” Dahl said. “I don’t think that sellers are aware that if you have just one buyer, you should take it.”
To contact the reporter on this story: Saleha Mohsin in Oslo at firstname.lastname@example.org