Norwegian house prices will show regional differences and rise, researchers at Pöyry have predicted. Other experts remain cautious, however.
The Pöyry researchers say Stavanger will see the highest growth, an estimated 36 percent between 2012 and 2015, whilst Oslo property prices will increase by 33 percent. The rise in Kristiansand house prices will be 10 percent lower over the same period.
Chief Economist Roger Bjørnstad forecasts that Norway will see an average price growth of 28 percent over the next four years, reports Dagens Næringsliv.
Figures from Statistics Norway (SSB) showed a rise of 3.5 percent between Q4 2011 and Q1 2012 on all types of properties.
Living in a bubble
However, Norges Bank Advisor Marius Jurgilas and Federal Reserve Economist Kevin J. Lansing fear a housing bubble in Norway, which could mean a fall in prices in the future.
They apply what lessons could be learned from the US property market boom after the 2001 Great Recession before the housing slump brought on by the financial crisis in 2008.
In the latest FRBSF (Federal Reserve Bank of San Francisco) Economic Letter, they write that these “may help determine whether housing bubbles exist elsewhere. Norway is an instructive case.”
“Real house prices were relatively stagnant in both countries for most of the 20th century. Norway and other Scandinavian countries experienced a major house price boom in the late 1980s, followed by a crash in the early 1990s. The crash triggered a financial crisis throughout Scandinavia, resulting in numerous bank failures.”
They go on to talk about US and Norwegian price-rent ratios since 1960, and compare both countries’ household leverage ratios.
The US household debt to disposable personal income ratio peaked in 2007 at approximately 130%, whilst the leverage ratio in Norway is now at 210%.
According to them, concerns about financial stability have been brought on by recent trends in Norway's housing market.
Norwegian financial authorities emphasise “the risks posed by growing debt burdens relative to incomes, high loan-to-value ratios, greater recourse to interest-only borrowing, and a widespread belief among Norwegians that house prices will continue to rise.”
Tabloid daily VG advises people secure a mortgage before buying and set a maximum amount they are willing to borrow.
Gaining knowledge of the local market, considering there will always be alternatives from the property they want to buy at a later stage, sell first, buy later, and paying in an extra sum towards the mortgage whilst interest rates are low are also important factors.
Meanwhile, Pöyry’s Roger Bjørnstad does not agree that Norway has a housing bubble, telling Aftenposten, “There are several fundamentals that will help drive up prices. There is a high wage growth in Norway, the interest rate is low and there is a growth in the population.”