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How the housing project freeze in eastern Norway affects future homebuyers

Robin-Ivan Capar
Robin-Ivan Capar - [email protected]
How the housing project freeze in eastern Norway affects future homebuyers
At the moment, there are big differences between the market for second-hand homes and the developments for newly built homes in Norway. Photo by Eirik Skarstein on Unsplash

Many housing construction projects in eastern Norway have been put on hold or postponed their sales timelines. What does that mean for prospective homebuyers?

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New home sales in eastern Norway have plummeted by 58 percent over a two-year span, as reported by E24. 

As a direct consequence of this decline, the region is now witnessing the suspension of new housing projects.

The severity of the situation has been underscored by recent data revealing a marked surge in the cancellation of housing projects during the summer months. 

Chief economist Andreas Benedictow at the Samfunnsøkonomisk Analyse consulting company told E24 that such levels of cancellations had not been witnessed since the financial crisis.

How will this construction project freeze affect future homebuyers in eastern Norway, especially in the Oslo area?

Supply issues down the road

Managing director of the Norwegian Association of Estate Agents, Carl O. Geving, told The Local that the current suspension of new housing projects in eastern Norway will heavily affect future price developments.

"In the future, this will heavily affect price developments, as the housing supply will be very tiny. Ten to 18 months from now, we will have a problem. 

"Although we can see housing prices (adjusted for seasonal variations) decreased in August, we will probably see a heavy price increase in some parts of Norway, especially the Oslo area, in 2024 and from 2025 – because the supply of housing inventory will be too low," Geving said.

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What happens when interest rates start going down?

Norway's Central Bank (Norges Bank) carried out multiple interest rate hikes in an attempt to tackle rising inflation, culminating in a policy rate of 4 percent in August.

Following suit, commercial banks in Norway raised their mortgage interest rates, making both existing and future home loans more expensive. To an extent, this has affected people's willingness to buy a home in the current market.

But what will happen once the central bank (and the commercial banks) starts decreasing its policy rate?

"For things to change, we have to build a lot more new homes, and with greater variety, both small homes and big housing projects, because demand continues to increase. But when supply is decreasing, as it is now, we will have a problem later on… I'm very concerned about the time when interest rates go down. 

"You never know when the central bank will make that move, but let's say they decide to decrease rates in 2024 and 2025, and wages continue to increase, people build up stronger personal finances, and demand spikes – that's when you'll have a problem," Geving told The Local.

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Differences between the market for second-hand and newly built housing

The real estate industry expert also noted substantial differences between what's going on in the market for second-hand homes and the developments for newly built homes.

"I'd say the market activity for used homes is quite normal - more similar to pre-pandemic times. In parts of 2022, inventory was quite low, but nowadays, the supply of used homes is at normal levels. 

"The reason why the interest rate hikes are not having an even more pronounced effect on housing prices is because of the market for new homes and people not buying them because of high prices, and because they're more insecure about the future," Geving said. 

According to the information published by the Real Estate Norway (Eiendom Norge) organisation on Tuesday, the housing market in Norway saw a modest 0.4 percent increase in housing prices in August

However, when adjusted for seasonal variations, the market experienced a decline of 0.6 percent. This cautious growth of 0.4 percent was singled out as the weakest August performance in the history of house price statistics kept by the organisation. 

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