Why home prices in Norway are starting to fall
Industry experts in Norway expect house prices in Norway to continue falling, following a decrease in September, with some parts of the country set to be affected more than others.
After a long period of growth, housing prices in Norway fell in September, in line with seasonal expectations.
"Housing prices fell sharply in September. The strong rise in August has now been fully corrected in the seasonally adjusted housing prices," the head of the Real Estate Norway (Eiendom Norge) organisation, Henning Lauridsen, told the newspaper DN.
Second-hand house prices fell by 2.2 percent in September 2022. Adjusted for seasonal variations, prices fell by 0.6 percent.
DN reports that this is the largest house price decrease in a single month since the financial crisis and the worst price decrease ever measured in September.
So, why are housing prices in Norway falling, and is the decrease likely to continue into the following months?
Seasonal trends
In typical, pre-pandemic years, home prices in Norway were largely cyclical. They were lower in the autumn and winter than in the spring and summer.
READ MORE: Property latest: What's the outlook for Norway's housing market this Autumn?
While the chaos and instability associated with the coronavirus pandemic left its mark on the real estate market, making it somewhat more unpredictable, most real estate experts still agree that prices are expected to fall in the next three months.
Improved supply, weaker purchasing power
The demand for housing was exceptionally high as the pandemic started to die down in Norway and as international workers and students began to return to the big cities.
Now, Henning Lauridsen points out that the supply of housing has strengthened. As the number of unsold homes increased notably in September (13,303) compared to August (12,040) and July (8,511), this could mean that supply is finally meeting demand in the market.
"So far this year, slightly more homes have been sold than in 2019, the year before housing sales picked up strongly during the corona pandemic.
"Throughout September, the supply side has continued to strengthen, and we also see a clear shift in unsold homes… This is also something that indicates a more moderate price trend as we advance," Lauridsen told DN.
At the same time, record-level inflation is eating away at the purchasing power of consumers in Norway.
Rising interest rates
Price developments in September were relatively weak in virtually all parts of Norway – except for Ålesund and the surrounding area – which could indicate that the Central Bank's (Norges Bank) interest rate hikes are beginning to work and that the market is cooling off.
Furthermore, high inflation might lead to increased interest rates on mortgage loans in the upcoming months, as Norges Bank is expected to raise its key interest rate in November and December, which will – in turn – likely be followed by commercial banks (such as DNB and SpareBank1) increasing interest rates on mortgage loans.
This should also decrease the demand for housing, as people will be less likely to take on more expensive debt.
Which homes will be most affected by falling prices?
The extent to which housing prices will be affected by the upcoming interest rate increases depends on the location and type of home that is being sold.
According to Sara Midtgaard, a senior economist at Handelsbanken Capital Markets, the effect of interest rates on prices is strongest for housing in more central Norwegian municipalities, both when rates are reduced and when they rise.
Norway's capital stands out, as the effect of interest rates on homes in Oslo after two years is almost double compared to national house prices.
However, in smaller central municipalities, housing prices are almost unaffected in the short term, Midtgaard writes for DN.
The reason for this, according to the economist, is that the effect of interest rates on house prices is greater felt in areas where there is a high amount of debt compared to disposable income. These areas tend to be large cities like Oslo, where more young people have not paid off loans and mortgages in full.
When debt repayments rise due to interest rate hikes, the home purchasing power of people in these areas decreases. This makes it harder for younger homeowners to buy more expensive homes, which drives down prices.
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After a long period of growth, housing prices in Norway fell in September, in line with seasonal expectations.
"Housing prices fell sharply in September. The strong rise in August has now been fully corrected in the seasonally adjusted housing prices," the head of the Real Estate Norway (Eiendom Norge) organisation, Henning Lauridsen, told the newspaper DN.
Second-hand house prices fell by 2.2 percent in September 2022. Adjusted for seasonal variations, prices fell by 0.6 percent.
DN reports that this is the largest house price decrease in a single month since the financial crisis and the worst price decrease ever measured in September.
So, why are housing prices in Norway falling, and is the decrease likely to continue into the following months?
Seasonal trends
In typical, pre-pandemic years, home prices in Norway were largely cyclical. They were lower in the autumn and winter than in the spring and summer.
READ MORE: Property latest: What's the outlook for Norway's housing market this Autumn?
While the chaos and instability associated with the coronavirus pandemic left its mark on the real estate market, making it somewhat more unpredictable, most real estate experts still agree that prices are expected to fall in the next three months.
Improved supply, weaker purchasing power
The demand for housing was exceptionally high as the pandemic started to die down in Norway and as international workers and students began to return to the big cities.
Now, Henning Lauridsen points out that the supply of housing has strengthened. As the number of unsold homes increased notably in September (13,303) compared to August (12,040) and July (8,511), this could mean that supply is finally meeting demand in the market.
"So far this year, slightly more homes have been sold than in 2019, the year before housing sales picked up strongly during the corona pandemic.
"Throughout September, the supply side has continued to strengthen, and we also see a clear shift in unsold homes… This is also something that indicates a more moderate price trend as we advance," Lauridsen told DN.
At the same time, record-level inflation is eating away at the purchasing power of consumers in Norway.
Rising interest rates
Price developments in September were relatively weak in virtually all parts of Norway – except for Ålesund and the surrounding area – which could indicate that the Central Bank's (Norges Bank) interest rate hikes are beginning to work and that the market is cooling off.
Furthermore, high inflation might lead to increased interest rates on mortgage loans in the upcoming months, as Norges Bank is expected to raise its key interest rate in November and December, which will – in turn – likely be followed by commercial banks (such as DNB and SpareBank1) increasing interest rates on mortgage loans.
This should also decrease the demand for housing, as people will be less likely to take on more expensive debt.
Which homes will be most affected by falling prices?
The extent to which housing prices will be affected by the upcoming interest rate increases depends on the location and type of home that is being sold.
According to Sara Midtgaard, a senior economist at Handelsbanken Capital Markets, the effect of interest rates on prices is strongest for housing in more central Norwegian municipalities, both when rates are reduced and when they rise.
Norway's capital stands out, as the effect of interest rates on homes in Oslo after two years is almost double compared to national house prices.
However, in smaller central municipalities, housing prices are almost unaffected in the short term, Midtgaard writes for DN.
The reason for this, according to the economist, is that the effect of interest rates on house prices is greater felt in areas where there is a high amount of debt compared to disposable income. These areas tend to be large cities like Oslo, where more young people have not paid off loans and mortgages in full.
When debt repayments rise due to interest rate hikes, the home purchasing power of people in these areas decreases. This makes it harder for younger homeowners to buy more expensive homes, which drives down prices.
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