Tuesday, October 1, 2013

Mainstream Media Spread News About House Price Decline

It has been a busy day for Norwegian media. Stories about the new minority government (revealed last night) have naturally taken most of the space, but throughout media there has been another fairly big story: House prices are declining. (see for instance here, here and here) The amount of coverage suggests that this will probably have a real effect on the market. There will surely be follow-up coverage in the coming weeks and months (experts speaking for, and against, a price correction) which will reach the audience even better than today.

The narrative has changed totally in such a short period. There is no more easy money to be made. And there's more and more stories about declining rental prices in face of oversupply. Just wait until some investors get in a hurry to sell at the top, like I mentioned in March.

There was another top story: Olav Nils Sunde, a shipping magnate, has bought a 1187 square meter apartment in Tjuvholmen, Oslo, paying a record $33,200 per sq m, for a total price of $39,400,000! Time will tell, but he has a chance of becoming a legend by marking the top of the 20-year bull market in Norwegian house prices.

Today's "No reason to panic" explanation for price decline came from Christian Dreyer of EFF (a national agency for real estate agents): He says (in my own words) that prices are not going down because of reduced demand but because of increased supply, in other words the market is functioning well.

Whatever is the reason, it's good to remember what is the most relevant indicator for future price increases: recent price increases.

(I believe I'm quoting perhaps the foremost expert on housing bubbles in the world, Robert Shiller, but I can't find the source at the moment - please see his great article on house prices here)


In case someone missed this last year, Robert Shiller has had a look at Norwegian house prices:

Robert Shiller, professor of economics at Yale University and co-creator of the S&P/Case-Shiller home-price index said that the Norwegian government "should start worrying now."
"This is a reason to expect an unpleasant end to this bubble in Norway. That is what I told them then, " Shiller told CNBC on Tuesday, alluding to a presentation he made in the Scandinavian capitals of Oslo, Copenhagen, and Stockholm in January in which he warned of the impending housing bust.
Rather than learning from its European neighbor Spain — where a real estate bubble saw home prices rise 44 percent from 2004 to 2008 before the bubble burst, leaving not only eerily empty properties and Spanish ghost towns , but domestic banks with billions of bad loans — Norway is letting its economic success go to its head, Shiller said.
"My suspicions are Norwegians are infected with a success story for their own country that makes high home price increases seem plausible to them, " a success only aggrandized when compared to its economically ailing euro zone neighbors, he said.
"They feel smug in their superiority with regard to the European crisis. They didn't even join the EU, let alone the euro. They don't have to bail out any irresponsible southern countries, " Siller said. "They have North Sea oil . They have low unemployment . [In short] they are doing everything right, and lots of people want to come to Norway."
However, Shiller notes that there is a paradox in the Norwegian success story.
"Norway is just about the last country to expect a housing bubble to appear, at least not a rational bubble, since it has so much empty land, " he said. "If home prices get elevated, there should be a prompt supply response, new houses will be built, bringing prices down, unless there is some kind of political or zoning problem. Even such political problems tend not to last forever. "

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