Norway’s central bank raised its key policy rate again on Thursday, amidst news that housing prices keep falling. The market for holiday homes, meanwhile, has chilled considerably as Norwegians rein in their spending.
It came as no surprise that Norges Bank boosted its policy rate by a quarter-point, a rise met with some relief that it wasn’t the half-point hike that seemed to have become almost routine this year. The new increase brings the central bank’s policy rate to 2.5 percent, and will likely set off another round of quarter-point hikes in mortgage rates. The bank’s overnight lending rate rose to 3.5 percent.
Norges Bank Governor Ida Wolden Bache tied the increase once again to efforts to keep Norway’s still relatively strong economy from overheating. “Economic activity is high in Norway,” Bache said when announcing the rate rise, “and unemployment is at a historically low level (3.2 percent, according to state statistics bureau SSB).” She and all the other members of the central bank’s committee in charge of monetary policy and financial stability remain worried, though, that inflation (6.9 percent, reports SSB) keeps climbing and is now “markedly above our target” of 2 percent.
“We are raising the policy rate to curb inflation,” Bache said.
The decision not to raise it by more than a quarter-point, she said, was linked “to signs that some areas of the economy are cooling down, and prospects for lower-than expected freight and energy prices may curb inflation ahead.” That makes her think that the central bank’s monetary policy, which has raised rates from zero in the past year, “is beginning to have a tightening effect on the economy.”
More evidence of such tightening came just as Bache was speaking, when the national real estate organization Eiendom Norge announced another fall in housing prices in October. They were down 1.9 percent on average from September, when they’d already fallen by 2.2 percent from August. Housing prices are still higher than last year, up 4.7 percent, but the current trend shows a major shift in the market.
“We haven’t had such a strong price decline in October since October 2008, the year of the finance crisis,” said Eiendom Norge’s CEO Henning Lauridsen. He tied the price decline directly to the rise in mortgage rates, now edging closer to 5 percent.
It’s also taking homeowners longer to sell their properties. It only took 18 days on average to sell a home in Oslo in the spring of 2021, when the policy rate was still at zero and housing prices were soaring. Now it can take a few weeks in the capital, while some homeowners elswhere have reported that it’s taking months to sell: State broadcaster NRK reported how one couple in Rana in Nordland has had their home on the market since June with no buyers yet.
OBOS, the large Oslo homebuilder, is predicting an ongoing fall in housing prices as buyers hesitate to commit. OBOS reported a 10 percent decline in sales last month compared to October 2021. “There haven’t been fewer sales in October since 2016, and that’s a sign the market is calming down,” stated Sissel Monsvold in a press release from OBOS. That an be good news for those struggling to enter the housing market, which otherwise has seen enormous price growth in recent years.
Hytte market ‘close to dead’
There’s also been a major decline in the market for holiday homes (hytter), with sales falling 28 percent during the third quarter. SSB reported a total of 3,232 hytte sales, 1,228 less than in July, August and September last year. High electricity rates get most of the blame, but higher interest rates play a role, too.
The decline in holiday home sales may not seem like much of a problem, but a large hytte industry has built up over the past two decades, fueled by Norway’s strong economy. Hytte-building and furnishing have become big business in outlying areas, but now some producers are cutting back and laying off workers. Newspaper Dagens Næringsliv (DN) reported that Tinde Hytter was laying off more than 50 employees including carpenters and administrative personnel, just a year after hiring more people at a large workshop in Vinstra.
“The market is close to being dead,” Audun Skattebo, CEO at Tinde Hytter, told local newspaper Gudbrandsdølen Dagningen (DG). “It’s a serious situation for our branch.”
Several economists have been predicting an economic slowdown in Norway, mostly tied to inflation and high energy prices resulting from Russia’s war on Ukraine. The chief economists at Nordea and Handelsbanken also predicted the central bank’s “more gradual approach to policy rate setting,” as Bache put it. Another quarter-point increase, though, is widely expected next month.