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The biggest issues facing first-time home buyers in Norway in 2023

Robin-Ivan Capar
Robin-Ivan Capar - [email protected]
The biggest issues facing first-time home buyers in Norway in 2023
Why has Norway's real estate market outperformed predictions, and what does it mean for first-time home buyers? Photo by Kamil Klyta on Unsplash

The market circumstances in Norway are posing difficulties for people hoping to buy a home this year. First-time buyers, in particular, are facing a challenging situation.

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As we move towards the half-year mark of 2023, the state of Norway’s real estate market continues to defy industry expectations.

Early in the year, most prospective homebuyers and real estate industry analysts expected to see a price decrease due to a series of interest rate hikes.

The logic behind this reasoning was as follows: as Norway’s Central Bank (Norges Bank) increases the key interest rate, commercial banks follow suit and raise interest rates on mortgages. This, in turn, makes it more expensive to take out mortgages, leading to fewer people taking out loans to buy property. With reduced demand, the market was supposed to cool off.

This line of reasoning is commonly viewed as quite standard, and one can see that it has materialised to a greater extent in neighbouring Sweden.

Why, then, has the price development in Norway’s real estate market been more potent than most forecasts at the turn of the year predicted? And what does this mean for first-time home buyers?

A surprisingly resilient housing market

At the time of writing, analysts seem to agree that there is a low risk of a significant downturn in the Norwegian housing market this year.

The recent price developments have shown that households in the country are better equipped to handle higher loan rates than what even Norges Bank assumed.

Several factors are currently keeping housing prices high, including high wage growth, a high degree of job security, increased population growth, and, especially, low housing construction.

A full-fledged construction crisis has gripped the Norwegian real estate market, and the resulting supply challenges, particularly when it comes to new builds, have been a hot topic in Norwegian media in April and May.

Real estate firms, such as Nordvik, expect the number of new homes entering the market to be relatively low in the next year.

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The dilemma of the first-time home buyer

Industry experts believe the housing construction crisis will raise prices further. At the same time, rising interest rates – which have been exerting downward price pressure on the market – are expected to slow down next year.

Therefore, prospective first-time home buyers find themselves in a challenging position.

On the one hand, mortgages are becoming more expensive due to increasing interest rates.

On the other, the housing construction slowdown (resulting from several systemic issues, as well as high construction costs) is cutting supply, which is preventing the cut in demand from having a real effect on prices.

As Obos, Norway’s largest housing developer, pointed out in a mid-May press release, a record low number of new homes with planning permission, a slowdown in new home sales, high construction costs, and more expensive mortgages all point to a drought in housing supply in the mid-term, especially in the capital.

Unfortunately, that means that the supply-side issues could outlive the interest rate hikes, meaning that first-time buyers won’t have a lot to look forward to in the next year or two, based on current market conditions.

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Deprived of the opportunity to benefit from increasing housing prices

Adding insult to injury, as first-time home buyers don’t own real estate, they will not be in the position to reap the advantages of the upward trend in house prices.

Established homeowners in Norway experience (and will continue to do so) the benefit of their existing properties appreciating in value, while first-time buyers miss out on this positive impact.

This disparity further widens the gap between those already on the property ladder in the country and those striving to take their first step onto it.

The industry consensus at the time of writing is that the barriers to entry into the housing market are likely to increase moving forward, making purchases increasingly unattainable for individuals looking to buy their first homes.

Still, it is worth noting that the growth in housing prices would have been even more pronounced if not for the frequent interest rate hikes witnessed in the past year.

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