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'A perfect storm': Why prospective home buyers in Norway face an uphill battle in 2023

Robin-Ivan Capar
Robin-Ivan Capar - [email protected]
'A perfect storm': Why prospective home buyers in Norway face an uphill battle in 2023
Housing construction has significantly decelerated in Norway, creating a worrisome situation for prospective buyers of new homes due to the limited housing supply. Photo by Daniel Diemer on Unsplash

The current economic conditions in Norway are making it hard for prospective home buyers to enter the market this year. Experts are calling the situation a "perfect storm."

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Housing construction has come to an abrupt halt in Norway. Higher interest rates and rising inflation have led to potential buyers of new homes delaying purchases.

In turn, construction companies have cut down on new housing projects.

The construction company Selvaag Bolig initiated the construction of only five homes in the first quarter of this year - compared to 134 last year.

Managing director of Selvaag Bolig, Sverre Molvik, expects a sharp decline in construction activity throughout the country, the newspaper Dagens Næringsliv (DN) reports.

Norway's largest housebuilder, Obos, which built close to 1,600 homes last year, will also build far fewer homes this year.

"I would guess less than half of (what we built) last year," Obos chief Daniel Siraj said on Monday.

What is happening in the Norwegian housing market?

Selvaag Bolig's Molvik calls the current market conditions – with increasing interest rates, a low housing supply, soaring construction costs and other price hikes in general – a "perfect storm".

"We have got an extraordinary situation. Because construction costs are so high, very little new material comes into the market. The supply side of new homes will thus be low, despite the fact that there are many people who want new homes. And many are waiting for interest rates to peak before they buy new homes," Selvaag told DN.

Obos, Norway's largest housing developer, recently announced that the price for their second-hand homes increased by 1.1 percent from March to April in Oslo and 1.2 percent nationally.

"The increase was more significant than expected and well above the average for April in the last ten years. Prices so far this year have increased more than we had expected.

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"We had imagined that the interest rate increases and the high cost of living would have a stronger effect... But a strong labour market, easing of the lending regulations, and low housing supply seem to have lifted prices," chief economist Sissel Monsvold in Obos explained in a press release.

Monsvold believes that the announced interest rate increases will lead to housing price growth being moderated over the course of the year, but the exact effect will depend on the supply side.

Henning Lauridsen, managing director of Real Estate Norway (Eiendom Norge), recently pointed out that the majority of the housing price fall that occurred through the autumn of 2022 has now been recovered.

"The strong development must be explained by the fact that the Norwegian economy is doing much better than many imagined at the start of the year, in combination with the easing of the lending regulations from New Year," he said in April when he warned that unless there were a "flood on the supply side after Easter," we would "still see growth in house prices going forward, and that even if interest rates were to be raised further."

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Obos: Unfortunate for people who want to enter the housing market

Monsvold at Obos pointed to low housing construction (particularly in Oslo), high wage growth, a high degree of job security, and increased population growth as counterforces to the interest rate increases.

Furthermore, Monsvold believes that the low level of housing construction will raise prices further, not least when the interest rate is lowered again.

"That will probably happen during 2024. It is very unfortunate for those who want to enter the housing market in the future that housing construction is slowing down as sharply as it is now.

"A record low number of regulated homes, slow new home sales, high construction costs, and more expensive mortgages could lead to a housing drought in the capital in one to two years," Monsvold said.

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