Saturday, September 22, 2012

Reckless Behaviour From Statistics Norway

In its latest prognosis for 2012-2015, Statistics Norway (Statistisk sentralbyrå, SSB) forecasts around 7-8 % yearly house price appreciation. I'm sure they have worked on the forecast more than I have on mine, but in my opinion there is a huge weakness in it: it is based on a "Goldilocks" scenario that has shown to be very vulnerable and is more likely than not to change abruptly sooner than later. The big picture is as follows: Fed and other central banks, engaged in fighting a deflationary outcome, have managed to (as a side product) keep the oil price high and force Norges Bank to import low interest rates. This is the only reason we are still looking at rising house prices in Norway. It has nothing to do with Norway doing something right and having built a strong economy that can withstand shocks. In a sense it's a pure coincidence, as Fed and other central banks don't care about the effects on Norway (believe me, there are very big effects) when they make their decisions.

But we don't need to go further into why SSB is probably wrong in its prognosis. Let's assume it could be right in its prognosis. Why would I still place my boot on the butt of Torbjørn Eika, the man I understand is responsible for this prognosis, and kick him out? This is because I think that SSB has enough authority, and does so affect people's take on the housing price development in the years to come: in other words, SSB can play a role in inflating a housing bubble. The current narrative in Norway, very much strengthened by SSB, is that the housing prices will keep on rising steeply in the three years to come (around 30%) and will then gradually flatten out. I warn you: the housing prices never flatten out at all-time-high levels. There is no "permanently high plateau" (as we know, Irving Fisher was wrong) when we talk about real house prices.

SSB should conclude that they can't possibly know what happens with the housing prices in the coming three years. If we assume they still need to come up with a forecast, as it is their not-so-enviable job even in this environment of, to use Fed governor Ben Bernanke's words, "unusually uncertain outlook", why not give a bit gloomier forecast? I suggest this because I think that anyone in their right mind should not think that rising house prices are anymore good for the Norwegian economy, and that everyone (now that Norges Bank's hands seem tied) who has the possibility to cool down the market should be working hard for it.

To me it seems likely that this is a disaster in waiting, and if it is, history will judge that SSB was one of the few players who had a chance to help adjust down the too rosy expectations of home-buying households, but actually ended up choosing to do the opposite.


Edit Sep 23:

Here's how the absolute nightmare looks like from the viewpoint of Norway's biggest bank (underlining by me):

DNB Markets analyst Kjersti Haugland said the bank's worst-case scenario calls for a 10% drop in Norwegian house prices in the next four years, following a euro-zone break-up that would with include five countries leaving the euro, including Italy.
 So the worst that could happen during the next four years is that two years' worth of house price appreciation would be lost? And this in a scenario that many economists believe would mean a deep, world-wide recession? This is the too rosy picture I'm talking about.


  1. I hope you are right. Its at the point where I actually hope there is a housing crash. These Norwegians are so blind! They keep spouting crap about how awesome their economy is and how they are different and Norway is too strong for a bubble. Well lets see, I dont think they are different at all. Ill cheer it on as it crashes, and then buy a property :)

  2. Good blog!
    When will you post new articles?
    Keep up the good work!

  3. norwegian housing bubble... it will take some time for it to burst, but when it does... I don't believe that Norway is different that other countries and the prices will grow always or at the worst stop growing... when I read about students buying 3.000.000 Nok apartments in Oslo or startlån or peaople buying for 5 times their annual income... It is not normal.

    keep the good work