Sunday, May 4, 2014

A Cliffhanger Moment?

As you have noticed, I've been deeply engaged lately in another project related to my main interest, which is money and debt. I'll start blogging about it very soon, and I hope that I get some feedback from especially the readers who share my interest - I've spotted many of you already in the comments section of this blog. I'll post a link when I'm online.

I don't go into details regarding the housing market in February-April, but the market hasn't been as weak as some had anticipated. To be honest, I myself anticipated a weaker market as well, but then again, I usually do that because things seem so obvious to me that I assume other people must see it somewhat the same way ;-) But in no way is the market exceptionally strong. The prices, as is typical in spring, are rising (12-month growth is back to positive at 0,3 % in March). Pricewise the market has been fairly strong, but supply side is where I see the ultimate weakness which I also referred to in my previous post. There were many signs earlier in the year that some willing sellers are holding back and waiting for demand to get higher, or supply lower (often two sides of the same coin), and I think this will keep the supply high going forward. I struggle to see where the demand that could eat up this inventory could come, but we are surely wiser after May and June.

There are also signs that banks are more willing to lend and have reduced mortgage rates slightly. My explanation for this development at the moment is that this is what the banks have to do if they want to deliver profits in the short-term. Many Norwegian banks depend so heavily, directly or indirectly, on the forever rising housing market, that they are in a sense "all in". They surely feel it's like shooting their own foot if they would start to really limit lending now. In the end, it's Norges Bank who needs to take the tough decisions. What I assume NB is thinking now - at least I would be - is that it's probably best to see how the housing (and lending) market will develop going forward in 2014. If the seeds for a price fall have already been sown, then it's best to do no drastic moves at this moment. What they probably want to see is stagnating prices, for now. What they are more worried about, though, is growth in lending. This has been falling since autumn, although it's still well above 6 %. I expect Finanstilsynet (bank supervisor) to keep up the strict rhetoric and make sure that banks are not relaxing their lending standards.

Overall, I would dare to say that the authorities are trying to set a ceiling for the home prices, or at least limit the growth to very low single digits. The only way for the price growth to get out of control again is a deficit in housing units available, and I've made it clear already that I can't see where this would come from. There is a flood of new homes coming on the market throughout 2014 and the supply of existing dwellings is also high. Job-based immigration is falling, so it's hard to see the demand for housing growing, especially now that people have become more careful with buying. At the moment, I expect that 2014 will play out in a fairly similar way 2013 did, with prices starting to fall again soon. I must admit that I didn't expect this a couple of months ago - I expected worse. And it still can turn worse (or better), depending on how the world economy (not least China) will develop.

If I let my imagination free, I could say that we might also be witnessing here a partly self-fulfilling prognosis from various players in the market, not least Statistics Norway and Norges Bank. They forecasted a dip, and now that the banks seem to be playing along, the broader expectation might be that this will work out like forecasted. This won't have a lasting effect, though, if what is wrong with the market is not just market psychology, but, like I have argued, there are fundemental reasons (a slowing economy) behind the price fall in 2013.


  1. Found a very nice paper, written by a couple of vgs students. Written in Norwegian, and with a lot of sense!

  2. AnonymousMay 12, 2014

    The bursting of a housing bubble is my dream (we want to be able to afford a house, please???), but sadly I don't believe it's going to happen. Just look at the UK, the prices there are going up and up and up and they had seen real recession, not like Norway. This is unfortunately the new reality. The values of housing vs income are being readjusted. What is also happening is a silent and creeping inflation that no one seems to be willing to acknowledge. Krona is simply losing its value. The cash we have in the bank is burning on my consciousness, and the houses we try to bid on go 10-20% over valuation. If after all the scaremongering in January the market still hasn’t tanked, it’s hard to believe it ever will.

  3. AnonymousMay 28, 2014

    Have you taken under your consideration some quite strong fuelling of the market by Husbank ? It is Norway specific financial institution which seems to have significant impact one the real property market.

  4. The Norwegian Central Bank is not currently inclined to increase the interest rates therefore they have to come up with other means of cooling property prices, First is the mandatory 10% down payment or deposit from the borrowers that was later increased to 15%. It has reduced the demand for mortgages as people find it hard to save up for the lump sum. Secondly, mortgage lending are now being funded by issuing shares rather than borrowing money which, although expensive, makes banks more resilient to economic crashes and difficult financial situations. Another way of cooling down property prices as banks will limit their mortgage issuance. Nevertheless, what Norway needs to work on easing the mortgage guidelines.

  5. Hi :)
    I am portuguese and I know very well what a bubble is all about.
    The problem is that in southern europe we don't have oil... Neither an insurance contract called "oil found".
    For me this situation in Norway does not make sense at all, but when I see my colleagues buying houses of 20 sqm for 2 million kroner, I understand why the market goes this way... I goes this way because people is completely out of reality. Let it be. I wont buy a house. I did it once and the bubble bursted. But it is easy for me to work in Norway and pay a house in Portugal. The opposite is just insane...