Category: Property / Real Estate
(Bloomberg) — A combination of plunging oil prices and falling interest rates risks pushing Norway’s housing market beyond its breaking point, the financial regulator said.
The economy of western Europe’s biggest oil exporter is now struggling to expand amid a slump in crude. The central bank cut rates in December and said there’s a 50-50 chance for another reduction, triggering a mortgage war as banks such as DNB ASA and Nordea Bank AB lowered rates to lure customers.
“Lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices,” Morten Baltzersen, head of Norway’s Financial Supervisory Authority, said in an e-mailed reply to questions this week. That could drive the housing market into a “self-augmenting spiral,” he said.
Norges Bank Governor Oeystein Olsen had kept rates higher than warranted by inflation alone to protect the economy from overheated credit and housing markets. The bank ended a 1,000-day pause in rates in December with a surprise cut to 1.25 percent after oil prices collapsed.
Norway’s housing market, which Nobel laureate Robert Shiller all the way back in 2012 said was in a bubble, has been inflated amid an oil boom that has driven wealth creation and kept unemployment below 4 percent. Norwegians have more debt than ever before, owing their creditors about twice their disposable incomes, a level that Olsen and FSA’s Baltzersen have said is unsustainable.
House prices rose 8.1 percent in December from a year earlier, according to Real Estate Norway. They have risen 85.4 percent nationwide over the past decade, the group says.
“I’m beginning to be a little bit worried,” Steinar Juel, chief economist at Nordea, said by phone in Oslo. Another rate cut from the bank would be risky and drive house price gains up by 15 percent, he said. “We could also have a situation where we really are in a bubble.”
In an effort to cool the market, Norway has introduced a number of measures including raising capital requirements, the risk weights that lenders assign their mortgages and capping loans at 85 percent of a property’s value.
The Conservative-led government last year allowed more flexibility in loan standards, allowing banks to lend up to 90 percent of a property’s value. The government rejected advice from the FSA for tighter regulations to slow debt growth.
While FSA declined to comment on whether it would present changes to its existing guidelines, Baltzersen said he has monitored the rise of house prices last year.
“Continued rapid growth in debt and house prices isn’t sustainable,” he said.
Published: February 27, 2024