Norway’s high and still-rising housing prices have prompted the International Monetary Fund (IMF) to warn Finance Minister Siv Jensen against loosening up the financing rules she tightened less than two years ago. Local economists and even real estate brokers also think capital requirements need to remain strict.
An IMF delegation was in Norway this week to deliver an otherwise “healthy” assessment of developments in the Norwegian economy and economic policy, citing stronger economic growth and more hiring. The IMF expects Norway’s GNP to rise by around 2.5 percent this year and next year, with very low unemployment. Expansive policies implemented just after oil prices collapsed four years ago contributed to the upturn now underway, according to the IMF, but should now be tightened up. That process is already underway, through the more restrictive state budget for which Jensen and the government have won parliamentary approval.
The only major cloud on the horizon is the renewed rise in housing prices, which had settled down last year after Jensen and the government imposed tougher capital requirements for obtaining mortgages. The government also has altered policies to rein in the market for investors buying second homes and for those acquiring rental property.
Debt levels keep climbing
New figures released this week by the national real estate brokers’ association showed another jump in average sales prices of 1.1 percent just from April to May. It was the fifth month in a row that prices have risen despite the rules imposed last year that homebuyers can’t borrow more than five times the borrower’s income. Home purchases also require at least a 15 percent downpayment, and 40 percent for those buying a second home in Oslo. One goal was to weed speculators out of the market that was driving up sales prices.
Prices quickly levelled off, but now that they’re rising again. Concern is rising too. The IMF strongly recommended that Jensen and her ministry extend the tougher rules that are due to expire at the end of this month. Household debt levels have jumped along with housing prices, and there are worries a “debt bomb” could explode at any time.
Carl O Geving of the real estate brokers federation Eiendomsmeglerforbund is also urging Jensen to extend the rules, even though brokers earn more themselves from the higher prices. “The IMF is worried about debt growth and the high real estate prices, especially in the Oslo area,” Geving told news bureau NTB. “That evaluation seems even more balance and insightful than earlier, and we share the IMF’s advice to extend the regulations.” Not indefinitely, Geving added, but perhaps for another two years.
‘Poses a risk for financial stability’
Norway’s consumer authority is also urging Jensen to maintain stricter capital requirements, and opposes any changes that will make it any easier for borrowers to obtain home loans. Elisabeth Haugseth, director of the state consumer authority (Forbrukertilsynet), noted that first-time homebuyers still have to compete with investors who buy up small flats to rent out. Many investors are also willing to pay high prices with an eye to renting them out as AirBnB units, much to the distress of homeowner associations that are trying to crack down on such short-term rentals in buildings designed for owner-occupants.
Jensen stated that she shared the IMF delegation’s view that high household debt “poses a risk for financial stability.” She claimed the government has taken steps to reduce that risk. “We will also consider the IMF’s view when we put forward our evaluation of the mortgage regulations later this month,” Jensen said.
She wouldn’t commit to any changes or lack thereof yet, but claimed she was listening to all the advice now coming into the ministry. Harald Magnus Andreassen, chief economist at SpareBank1 Markets is even urging Jensen to further tighten income requirements for mortgages. “As long as interest rates are so low, we must have more regulations,” Andreassen told newspaper Dagsavisen. The central bank has already indicated it will raise Norway’s key policy rate later this year.