Oil Capital Feels the Pain as Norway’s Housing Boom Cools
Jone Joakimsen had to accept less money than he asked for when he sold his house outside Stavanger, Norway. He counted himself lucky: His neighbor’s home had been on the market since October.
The housing market in Scandinavia’s richest economy is slumping after a decade-long boom spurred by low interest rates and surging petroleum wealth. Among the biggest cities, nowhere is the pain being felt more than in Stavanger, the nation’s oil capital, where the market has been fast to reverse after home prices tripled from the start of 2003 through mid-2013.
Joakimsen, a program manager at broadband and cable service provider Altibox AS, last month sold his four-bedroom home in Sola, just outside Stavanger, for 4.7 million kroner ($776,000), 50,000 kroner below the asking price. While it was on the market for 10 days and sold the day following the open house, he received only one bid, dashing his expectations for the bidding war that sellers have come to expect.
“It’s sort of a painful process,” the 35-year-old said. He’s moving to Vaulen, a neighborhood in Stavanger, with his wife and two kids. Sellers “don’t realize that they have to reduce the price because the market value has decreased.”
The cooling real estate market risks derailing the rest of the economy and Nordea Bank AB (NDA) this week predicted that growth will slow both this year and in 2015. The largest Nordic lender forecasts unemployment will rise to average more than 4 percent next year, a level not seen since 2006.
Housing prices in Stavanger, a town of about 130,000 people that’s home to Statoil ASA (STL), Norway’s biggest oil producer, have dropped 4.8 percent from a peak in May, according to the Real Estate Broker Companies Association. Prices rebounded in the first two months of the year, following seasonal patterns.
Nationwide, prices have slid 2.4 percent from May, after doubling over the past decade.
Home prices started to slide after regulators enacted measures to contain a build-up in consumer debt and as stagnant oil prices weigh on the nation’s petroleum industry. Oil output has dropped for 13 consecutive years and investments are expected to fall off after reaching a peak of 180 billion kroner next year, the Norwegian Petroleum Directorate estimates.
The effects may be magnified in Stavanger, which shed its reliance on sardine cannery and fishery to become a city crammed with expats and upscale restaurants after the discovery of giant North Sea oil fields in the 1970s.
“If there is any place there is a bubble, so to speak, in Norway, Stavanger is the place,” Steinar Juel, chief economist at Nordea Bank AB, said in an interview. “The oil sector has also affected other parts of Norway but Stavanger is virtually the most affected.”
The average home price in Stavanger at the end of February was 3.65 million kroner, 33 percent higher than the average for Norway. Producers such as Royal Dutch Shell Plc (RDSA) and Exxon Mobil Corp. all have bases around the city to service offshore installations. The Rogaland region, where Stavanger is located, had a registered unemployment rate of 2.2 percent in February, compared with 2.9 percent nationwide.
Backstopped by an $850 billion sovereign wealth fund, the AAA rated country was largely unaffected by the crises that gripped both the U.S. and Europe. The euro area is suffering as unemployment hovers at more than 12 percent. The housing slump also has far to go to match declines seen in the U.S., where prices slumped about 35 percent from a peak in 2006, according to the S&P/Case-Shiller index of property values in 20 cities.
Still, Norway’s central bank in December delayed plans to raise rates by a year, to the summer of 2015, amid signs the housing slump was eroding confidence and economic growth. Finance Minister Siv Jensen in February said banks should be more flexible and lend up to 90 percent of the property value, compared with a previous 85 percent cap, to support first-time homebuyers, going against the advice of its financial regulator.
Nordea’s Juel sees housing prices falling about 10 percent from the peak last year through 2015. While he hasn’t compiled an estimate for Stavanger, he said it wouldn’t be a surprise if prices fall more there.
Statoil last month said it would cut planned investments in the next three years by 8 percent as it seeks to boost shareholder returns amid rising costs. Brent crude has slid about 15 percent to $108 a barrel from a high in 2011.
Joblessness in the Stavanger region jumped 26 percent over the past year, the most in the country, according to the Norwegian Labor and Welfare Service. The number of job vacancies dropped 8 percent, according to the agency.
The city’s real estate brokers are facing a new reality. The average number of days houses in Stavanger spent on the market has more than doubled to 55 in February, from 23 a year earlier, according to the broker’s association. Properties in Norway spent 15 more days on the market in February, compared with a year earlier.
“We saw that right before the summer something had changed,” said Rune Bertelsen, regional manager at Eiendomsmegler 1 in Stavanger. “Suddenly it seemed that the market had reached a ceiling.”
For some in Stavanger, where people outside the oil industry have been struggling to keep up with rising costs of living, the cooling housing market may come as a relief.
Nina Meldahl, a 28-year-old who has a temporary job as a project assistant at the city’s chamber of commerce, recently returned to her hometown after completing a master’s degree in political science in Russia to find she was priced out of the housing market.
Coming back from abroad, she thought, “now I need a job and I need to buy a flat immediately,” she said in an interview. “I feel like renting, isn’t a failure, but a downer, because you want to have your grown-up life.”
Meldahl said she expects to buy an apartment in the summer with help from her parents after she finds a full-time job.
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