Norwegian Housing Slump Deepens in Threat to Economic Recovery

Updated on
  • Housing prices slid 6.2% in capital city Oslo last year
  • Norway’s central bank has signaled rate increase late 2018

Norway’s house prices extended losses in December, adding to concerns an economic recovery will be thrown off track.

Housing prices fell a seasonally adjusted 0.5 percent, Real Estate Norway, Eiendomsverdi and said in a monthly report. Nationwide they fell 2.1 percent over the year through December, driven by a 6.2 percent decline in Oslo.

After a period of rapid growth in house prices and mortgage debt, the market has reversed course in recent months, driving the Norwegian krone toward a near all-time low in December. The property market started to cool following a tightening of lending standards at the start of 2017. The government has asked the Financial Supervisory Authority to advise on the impact of those rules and whether they should be extended past a June 30 expiration date.

“We believe there is still further downside to prices both nationally and in Oslo as the stock of unsold houses is still elevated,” said Halfdan Fenwick Grangard, a senior economist at Svenska Handelsbanken in Oslo. “However, we do not share the view held by some that housing prices, in general, are in for a prolonged downturn. We expect housing prices to fall moderately over the next few quarters before leveling out.”

The krone slid 0.1 percent to 9.75 per euro as of 11:43 a.m. in Oslo.

Norway Cools

Housing market takes a dive in 2017

Source: Eiendom Norge, FINN and Eiendomsverdi

Note: Monthly changes in nationwide housing prices

In a report published by the OECD last month, the group warned that Norway should prepare for a possible housing correction. Adding to this, the U.S. based credit agency Moody’s said in a report that the Norwegian housing market appears to be the most “stretched” when comparing price levels to what they define as a market equilibrium among 20 advanced economies.

The central bank has so far appeared sanguine on the housing market, with Governor Oystein Olsen saying last month that he foresees a “soft landing.” The bank on Dec. 14 even signaled it could raise interest rates sooner than anticipated, indicating a first rate hike by the end of 2018.

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