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EXPLAINED: What do Norway’s rising house prices mean for you?

Even a pandemic hasn't been able to stop property prices from soaring in Norway over the past year, but why are they rising, and how long will they continue to rise for? Here's what you need to know.

EXPLAINED: What do Norway's rising house prices mean for you?
Will prices continue to rise going forward or will they plummet? Photo: Seth kane on Unsplash

Property prices in Norway have risen 12.5 percent nationally compared to the same time last year, according to new figures from Statistics Norway

In addition to this, prices rose 2.7 percent from the first to the second quarter of 2021, with values increasing in every county in Norway. 

The average price of a property in Norway in June was just shy of 4.4 million kroner (approximately $505,000) according to numbers from Real Estate Norway, the national association for estate agents in the country.

PROPERTY IN NORWAY: What to expect if you’re buying a home in Oslo

Where have house prices been rising? 

Compared to last year, house prices have grown strongly across the board. The most robust growth was in Vestfold, Telemark and Viken, where prices rose by 15 percent. The slowest growth was in Møre and Romsdal and Vestland if you exclude house price rises in Bergen; houses still rose by just under ten percent in those areas. 

Detached and semi-detached houses grew in value the most while prices for apartment blocks grew the slowest. 

What’s causing house prices to rise?  

The rise in housing prices has primarily been driven by low interest rates.

Norges Bank, Norway’s central bank, slashed interest rates to zero last in May last year due to the coronavirus pandemic. 

“Most of the price increases over the past year can be attributed to the interest rate effect,” Røed Larsen from Housing Lab, a property think-tank, told online news site Nettavisen

Lower interest rates mean more people are willing to borrow money to make big purchases such as houses, leading to a massive surge in demand across Norway. 

Houses are selling in record amounts and the average time a house spends on the market in Norway before being bought is just 29 days as of June 2021.  

According to Norges Bank, interest rates aren’t the only thing driving demand; pandemic restrictions have left people itching to splash out on a place of their own. 

“Increased use of home offices and limited consumer opportunities to spend disposable income has probably also increased demand,” the bank said in its monthly report for June

How long will prices continue to rise? 

Experts have said that house prices are unlikely to continue to skyrocket as they have done over the past year and are instead facing a “headwind” in the form of higher interest rates on the horizon and stricter credit regulation. 

“The strong rise in house prices is facing headwinds in the form of higher interest rates, stricter credit regulation and high construction activity in several places,” Christian Fengstad Bjerknes of the Co-operative Housing Federation of Norway (NBBL) said in June.

“We are likely to have a period of moderate price development. However, it is not unlikely that prices will fall over the autumn, as they typically did before the pandemic,” Real Estate Norway’s managing director Hennig Lauridsen had previously predicted when speaking to financial site E24.

Lauridsen believes that the pandemic will continue to have a long-lasting effect on the demand for housing in Norway. 

“We believe that the strong demand for housing in Norway will persist and that the pandemic has led to a lasting shift in the housing market,” he said. 

Looking ahead to 2022, there’s plenty of uncertainty over the future of house prices as Minister of Housing Nikolai Astrup has laid down new rules that will regulate housing valuations in Norway. 

The new regulations are set to come into effect on January 1st 2022, unless they are scrapped by the current government or a new coalition government after September’s general election. 

“This new legislation would regulate over 100,000 transactions in the housing market and will have major consequences for Norwegian consumers with increased costs, increased risk and increases insecurity if the legislation isn’t properly done,” Lauridsen said. 

What will the changes to interest rates and regulation of property valuation mean for you? 

In short, this is good news for those looking to buy or get on the property ladder but bad news for those looking to sell over the next couple of years. This is because higher interest rates will gradually bring house prices down. 

“We expect a better balance between supply and demand with a shift from a seller to a buyers’ market. This (interest rate rising) will provide a more sustainable housing market in the time to come,” CEO of the Norwegian Real Estate Association Carl Geving said in the associations latest monthly report

READ ALSO: Is it better to buy or rent property in Norway?

Interest rate price rises could also hit the pockets of those who have recently bought a property with a flexible rate mortgage, as interest rates are expected to rise 1.5 percent by the end of 2022. 

Furthermore, if the new regulations on property valuation do come into force then those selling their house may get less than they were expecting depending on how well the rules are implemented. 

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‘No quick fixes’: Gloomy forecast for Norway’s rental market

High demand and a shortage of properties has led to a tight rental market in Norway's big cities. The Local spoke to real estate experts to find out what needs to happen for the situation to change.

'No quick fixes': Gloomy forecast for Norway's rental market

After two years of the coronavirus pandemic, day-to-day life in Norway is – more or less – back to normal. 

While many young people and students in Norway are enjoying their reclaimed freedom of movement and lifestyle, the aftereffects of the pandemic continue to impact their lives, most notably when it comes to finding rental accommodation.

Financial newspaper Finansavisen recently reported that, at the end of June this year, there were 45 percent fewer rental properties on the market compared to 2021. 

The rental market is particularly tight in big cities like Oslo and Stavanger, and properties are being rented out much faster than last year

Are there any signs that the situation will improve in the coming months?

A demand crisis in Oslo and Stavanger

As things now stand, those looking to rent in Norway are in for a rough time.

“The demand for rental properties was lower than usual during the pandemic. At the same time, house prices in Norway rose. We believe that quite a few people used the opportunity to sell their rental homes at the time. 

“After the pandemic, all the students and people working in Norway (for example, workers from Sweden and Poland, as some of them went home during the pandemic) have largely returned to the cities. 

“So, demand is very high, we have a demand crisis in some areas – especially Oslo and Stavanger. However, many places in Norway don’t have such a problem; it’s mainly the case in big cities,” real-estate industry veteran and director at Real Estate Norway Henning Lauridsen told The Local.

Fewer second homes

Carl O. Geving, Managing Director at Norway’s Real Estate Association (NEF), agrees with Lauridsen. He also points out that, during the pandemic, there has been a decrease in the number of second homes in Norway – homes that are usually rented out.

“We see increasing demand in the rental market, that is correct. The market is very tight, especially in Oslo, because of the lack of possibilities to rent apartments. 

“The number of second homes for rent in Oslo has decreased from 59,000 to 54,000 since 2019. So, in Oslo, it is quite difficult to find an apartment for rent – the fact that the construction of small apartments in the capital is limited, the tax framework, and the decrease in the number of investors in construction projects also make the situation worse,” Geving said in a phone call with The Local.

No quick fixes

In the short term, industry experts see only dark clouds on the horizon for people looking to rent in Norway’s major cities.

“It will take some time for the situation to change. The lack of housing in Oslo results from insufficient development over 15-20 years. However, in Stavanger, the situation may improve in six months or a year. Overall, it’s pretty difficult at the moment; there is no easy solution,” Lauridsen stated.

Geving agrees: “There are no quick fixes. With the current tax system, it’s difficult for things to change fast. If we get a price correction in the buyers’ market, we will likely have even fewer second homes. Norwegian authorities are trying to help to get more people to rent, but that also takes time.”

Thus, the rental market squeeze in large cities seems to be here to stay. 

Is there anything people looking for rental housing can do to adapt? The Director of Real Estate Norway believes people can try to look further away from where they initially wanted to rent. 

“That could be a possibility. But it will be difficult,” Lauridsen noted.

On the other hand, Geving thinks that buying properties together with friends – a practice common in parts of Norway – could be part of the solution.

“We can see that, in tough times, more people try to buy properties together with friends, it becomes more common. 

“Still, it’s challenging. Students and young people have limited capital, typically. In previous years when we had this debate, students and young people managed to get by, but the market is more crowded this year. Thus, some people will likely choose to live outside Oslo in the surrounding municipalities and travel to the capital via train or bus.

“The problem is less serious in Bergen and Trondheim, but in Oslo, it’s quite tough,” Geving pointed out, adding that building more student homes in the capital could also be part of the solution.