Saturday, June 1, 2013

Statistics Norway Calls The Housing Party Off?

In September last year I criticized Statistics Norway (SSB) for reckless behavior. I was more or less pissed at their forecast of around 30 % house price increase for the coming three years, because in my opinion it fed the overly rosy picture of Norwegian (1st and 2nd) home buyers and was helping to inflate a dangerous bubble. Well, a lot has changed since then:

It's hard to tell if they have decided to heed my advice, or if they have started to see some clouds in the sky, but I'd bet my money on the latter option. In just nine months SSB has moved from "Up, up, up!" to "Down, down, down.", when talking about the growth prospects.

By applying the same "linear extrapolation" that SSB presumably used for its Sep'12 forecast, to the rate of change between SSB's forecasts, you get an idea where we might be within the next nine months. But take into account that its latest forecast still assumes GDP growth of 3,0 %, 3,3 % and 3,2 % for 2014, 2015 and 2016, respectively, for Norway...


  1. AnonymousJune 03, 2013

    Well as long the shale gas revolution stops and the European economy suddenly grows hugely, there really is nothing to worry about and the Norwegian housing market will remain just peachy. Where does the SSB expect growth to come from? From more public sector spending, is that it? Mind you, it's an election year so the pork barrel will be rolled out.

  2. Slightly off topic, but it interests me the political aspect of house prices, especially in countries with high rates of homeownership like NZ, Australia, UK and Norway. Essentially home owners like to see rises in their property value rather than decreases, and so a crash or decreasing property values will be bad for whomever is in power. A classic example is in the UK at the moment with the governments Funding For Lending and Help to Buy Scheme, see link:
    So if we start to see a crash in the Norwegian housing market can expect similar here.
    However I do not think the Property market fiascos outside of Norway is going unnoticed by the political and financial elite, thus I believe that a stable market, in line with inflation, or perhaps just under is politically desirable in Norway. Also given the generous welfare state, high house prices will incentivise people to work harder.

    1. What you say makes a lot of sense. But aren't that kind of assumptions part of the reason why bubbles form? People believe that authorities are in control of house prices, and so they don't need to worry, just buy if they get a loan?

      I guess in the end it comes to predicting the future. That's something no one is very good at. When expectations are high, as they seem to be currently in Norway, it doesn't look like a bubble. If the future doesn't confirm the high expectations, then there suddenly is a bubble. What I've been saying is that it always comes a time when the future falls short of expectations, because there always will be economic cycles.

      We see many signs of a fairly long cycle coming to an end in Norway. One is that more and more people are talking of house prices flattening out in the near future. That speaks for an end to a cycle?

    2. And yes, high house prices will incentivize some people to work harder. But if you look at the home ownership ratio in Norway, there is also a big bunch of people who can take longer holidays because they have become very wealthy during the last decade?

      The same people help their kids "into the market" and teach them that if you want to get wealthy (before you inherit your parents), the first thing you need to do is buy a house. If you're lucky it's the only thing you need to do.

  3. AnonymousJune 06, 2013

    "Also given the generous welfare state, high house prices will incentivise people to work harder. "

    Ha, no, more likely it will incentivise the government to make bigger welfare payments ;)

  4. Nice blog!

    I would like to write in Norwegian, since I reckon you are from Norway, but seeing as everyone else comments in english, OK:)

    One of the biggest threats of a bubble is of course the leverage that is created, and which will take the entire economy down with it when (not if) it bursts. In addition to creating lots of personal misery. Our oil has finally become a curse, our whole economy is askew, and with (as you explain so well) QE around the world, a Norwegian interest rate forced low because of the currency pressure, incompetent media that interview real estate agents and call them "housing experts" (oh my my), I could go on, but you explain it better...record real house price levels, record private indebtedness, both way over USA 2007, everybody singing´s almost to insane to comprehend. And the upcoming election debates will not touch this.(And Erna doesn´t understand, as you pointed out. But Jens does! My theory is that he can´t hand the PM post over to Erna fast enough now, he knows it´s gonna end badly) And the irony of course, why do we intensify the extraction of all this (bubble creating) oil, the prime cause of it all? When it is a resource that is bound to become more precious in 10,20,30 years? - Well... so that the Norwegian state can buy Japanese treasury bonds (and the like) of course! Now that is real value!!

    Oh dear, oh dear...

    "The difficulty is to try and teach the multitude that something can be true and untrue at the same time." - Arthur Schopenhauer.

    Keep up the good work! Cheers from Bergen.

  5. Thanks for all the positive feedback, Tarjei!

    I fully agree with all you say. And when we talk about the media, what is in my opinion one of the most ridiculous things is the way they (mainly introduce "winners", young people who have been so "lucky" that they have managed to buy an apartment. The unquestioning way in which they treat these Cinderella stories almost drove me to appear on the pages of DN with my own story of cautious and calculated decision to rent instead of buying :-) I really feel bad for the young first-time buyers who do not understand the risk they are taking. These people deserve to hear a more balanced take on the housing market.

    I think Øystein Dorum of DNB described this reality in the article I linked to in my new post:

    "- Det er mange unge mennesker som ikke kjenner noen annen virkelighet enn stigende boligpriser, sier Dørum til avisen.

    Han forklarer at 20 år med firedobling i realprisene på bolig har gjort at mange lever i en virkelighet som ikke kommer til å vare lenger."