The cost of housing is still high in Norway, but brokers report another decline in prices for the month of June that’s been described as “dramatic.” Prices fell the most in Oslo, where they’ve been highest and where supply has jumped while demand has fallen because of tougher financing requirements.
The national real estate brokers’ association Eiendom Norge released statistics for June that startled economists and analysts. “It wasn’t unexpected that the housing market in Oslo would decline in June,” Erik Bruce, chief analyst at Norway’s second-largest bank Nordea, told news bureau NTB, “but it fell more than I expected and the development is clearly dramatic.”
Housing prices nationwide were down an average 1.6 percent from May, but fully 3.1 percent in Oslo. Newspaper Dagens Næringsliv (DN) reported last month how speculators had been leaving the market along with investors who were buying up leiligheter (condominiums) to rent out. They were largely blamed for fueling the huge price rises that characterized the market for the past few years, when housing prices rose as much as 24 percent on an annual basis.
New regulations are working
In January, however, the government rolled out new lending regulations aimed at cooling off a seriously overheated market. The new rules limited mortgages to 85 percent of market value, required that lenders’ total debt could not exceed five-times annual income and that borrowers must be able to tolerate an increase in interest rates of five percentage points over current rates. Those buying second homes, or investment properties, can now only borrow 60 percent of market value. Banks’ flexibility in lending money free of regulation in Oslo was limited to 8 percent of total loans made, or a maximum of NOK 10 million per quarter. The limit was set at 10 percent elsewhere in Norway.
The new regulations, backed by Finance Minister Siv Jensen, had an immediate chilling effect on the market. By May, reported DN, “hobby investors” hoping to cash in on the double-digit increases in housing prices were leaving the market, according to a study by research firm Eiendomsverdi, which registers developments in the market. “Increased capital requirements make the situation a bit more difficult,” admitted one investor in late June, “and I also think prices have topped out now.”
He may be right, given the June sales statistics. They reflected a price decline in Oslo that’s the biggest ever for the month of June. Prices were still 11.5 percent higher than in June of last year, but that also reflects a big decline in the annual appreciation rates of recent years.
Prices from May to June were also down in Stavanger (-0.8 percent), Sandnes (-1.1 percent) and Bergen (-1.6 percent) and Trondheim (-0.1 percent). Slight increases of 0.2 percent were registered in Bodø and Tromsø. Brokers could note that it’s also taking much longer to sell homes, with the national average up to 30 days and 20 days in Oslo. Prices averaged NOK 41,003 per square meter nationwide but are still as much as double that in Oslo, in some cases even more. Prices averaged NOK 89,342 per square meter in Oslo’s fashionable Frogener district, for example, and NOK 78,562 in the popular east-side district of Grünerløkka.
Bruce of Nordea noted that the latest price decline will likely reinforce the cooling trend. “When folks begin to expect price declines, it can become a self-fulfilling prophecy,” he told NTB. “Buyers get more demanding and many want to sell before buying anything new.
Several economists and not least would-be young buyers who’ve been priced out of the market welcome the decline. “Hurrah, prices are sinking,” headlined one commentary in newspaper Aftenposten on Thursday, which praised how the government’s “medicine is working.” Now hopes are high, though, that there won’t be an “overreaction” that will send the market into a dive.
‘Necessary but painful correction’
DN reported Thursday that Grethe Wittenberg Meier, head of the brokerage firm Privatmegleren, was already calling for withdrawl of the new lending requirements. In a letter to Finance Minister Jensen she claimed they’re “hindering a dynamic and well-functioning housing market.” Others also worry that it’s become too difficult for first-time buyers to obtain financing.
Jensen and her ministry, however, have no intention of reversing its formula for cooling off the market just yet, claiming there’s now “better balance” in the market. Household debt “is still rising,” Jensen wrote in an email to DN, “and hopefully that growth will taper off gradually.” The regulations will remain in place at least until the summer of next year, she noted, adding there was “no reason to evaluate any changes now.”
Leif J Laugen of real estate brokerage Krogsveen told DN that housing prices “rose for much too long,” calling the current decline “a necessary but painful correction.” Economists at DNB, Norway’s biggest bank, predict “a buyers’ market” at least through the end of this year.