Construction cranes remain a common sight in the Norwegian capital, but homebuilders have seen a dramatic sales decline in recent months and home loan demand has also fallen. Norwegian banks are reporting the biggest fall in lending inquiries since 2010, and some may trim interest rates to levels even lower than they are now.
As the executive board of Norway’s central bank gathered this week to decide on their own key policy rate, signals remain strong that Norway’s once-sizzling-hot real estate market is now downright chilly, especially in Oslo. The latest batch of numbers, released by Econ Nye Boliger on Tuesday, has shown big, double-digit declines in sales at brand-new housing projects. Total sales were down 41 percent in Eastern Norway in the two-month period from mid-August to mid-October, compared to the same two months last year. In Oslo, the decline was 48 percent.
“The question, really, was when the correction (in the residential real estate market) would come,” Andreas Benedictow, chief economist at the research concern Samfunnsøkonomisk analyse, which prepared the new housing sale report for Econ Nye Boliger, told newspaper Dagens Næringsliv (DN) on Wednesday. “The enormous price increase we saw until the springtime clearly was not sustainable.”
Rise in the number of unsold homes
The 1,245 new homes sold since mid-August represent 18 percent of inventory on offer in the eastern region known as Østlandet. Sales were strongest in Hedmark County (where Hamar is located) and weakest in Oslo. There are now 5,861 unsold homes on the market, compared to 5,099 in August.
The decline comes along with falling real estate prices in the open market, and may lead to a price decline among unsold newly built homes. Most developers obtain purchase commitments from homebuyers for 60 to 70 percent of their units before breaking ground on projects. Prices on unsold units that usually are fixed may be negotiable.
Baard Schumann, chief executive at major homebuilding firm Selvaag Bolig, told DN that he fears other new projects may be put on ice. “There’s no point putting more product on the market,” he said, citing two main reasons for what he now calls “the weak Oslo market:” New lending requirements for 40 percent downpayments on second homes (those bought by investors or speculators, usually to rent out) and primary home buyers who are “sitting on the fence” because prices are declining for the first time in years. Investors and speculators, though, were accused of driving up prices to unhealthy levels. With them absent from the market, some economists think a more “realistic” pricing level for those needing shelter may emerge.
Schumann calls it a “paradox” that new housing sales are falling in Oslo, where he thinks a need for housing still exists. “This is a situation created by politicians (who responded late last year to calls that housing prices were spiraling out of control),” Schumann told DN, adding that a decline in homebuilding will be followed by a new rise in prices.
Daniel Siraj, chief executive of the large homebuilding collective OBOS, also things some new homebuilding projects will be delayed, but not permanently put on ice. He doesn’t think too many homes are being built in Oslo: “Folks are just sitting on the fence.” He admits OBOS had hoped to sell out its new projects faster than it did, “but we’re working systematically on new projects anyway.”
Thorbjørn Brevik of Skanska Eiendomsutvikling is not worried about the fall in new housing sales. “We have a high degree of sales in the portfolio and enough to start a new phase at Ensjø (on Oslo’s east side),” Brevik told DN. “The macro outlook is good with low interest rates, more hiring, lower unemployment and strong consumer confidence.”
Mortgage demand, though, is down in line with housing prices and new home sales. DN reports that the decline turned up in the central bank’s own lending surveys during the third quarter.
It reportedly caught the banks by surprise. “The most interesting thing is that not only are folks being turned down for loans (because of tougher capital requirements), fewer are seeking loans,” Erik Bruce, chief analyst at Nordea Markets, told DN. “I view that as a reflection of a weaker housing market with falling prices.”
The banks are, however, experiencing higher demand for business loans, believed to be a reflection of growth expectations and more business confidence. A panel of economists expected the executive board of Norges Bank to keep its key policy rate unchanged on Thursday, with most contending the Norwegian economy still needs low interest rates as it continues to recover from the dive in prices for the country’s major export product, oil.