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Thursday, May 23, 2024

High housing prices start to sink

Norway’s notoriously high housing prices fell last month for the first time this year, by a national average of 1.2 percent. Analysts expect a rise again this fall, but some claim a housing crisis looms because housing starts are down much, much more as interest rates rise.

There has been lots of housing construction in Oslo in recent years, like here in the Nydalen area, but it’s dried up this year. Housing market analysts blame high building costs, strict local regulations and buyer uncertainty caused by rising interest rates. PHOTO: Berglund

The current market situation can lead to a serious housing shortage in Norway’s biggest cities, and push prices of available housing back up. Both borrowers and builders, though, face lots of uncertainty as interest rates continue to rise.

The latest statistics for housing prices were released by Eiendom Norge, the national real estate brokers’ association, on Wednesday. They showed the monthly decline of 1.2 percent from May to June, but prices have still risen 6.4 percent so far this year compared to last year at this time.

The decline in June may pose a turning point in the market, even though it’s common that prices fall just before the summer holidays. “We expect the strong rise in interest rates will have an effect on housing prices from here on,” said Henning Lauridsen, managing director of Eiendom Norge.

There’s currently more product available on the resale market than there are buyers, pushing prices down. A residential property in Oslo, though, still costs around NOK 100,000 (USD 10,000) per square meter  or more. PHOTO:

Lauridsen thinks the strong rise in prices during the first half of the year will “be corrected” during the second half of the year, especially since Norway’s central bank looks likely to boost interest rates again in August. That will push home mortgage rates up to around 6 percent, adding thousands of kroner to monthly payments on home loans that had rates of just 3 percent or even less just a year ago.

A total of 56,784 homes have been put on the market so far this year, up 5.2 percent over last year’s first-half. The increase was as high as 11 percent in Kristiansand and 10.3 percent in Stavanger, reports state broadcaster NRK, while newspaper Dagens Næringsliv (DN) reported Wednesday morning that there have been more sellers than buyers. That, along with higher interest rates, is making buyers more cautious and putting pressure on prices.

Real estate price declines in all major cities
Prices were down 1.3 percent in both Stavanger and Kristiansand, -1.1 percent in Oslo and -0.8 percent in both Bergen and Trondheim. The difference between homes on the market and actual sales is high, with brokerage firm Privatmegleren dealing with listings that are around 30 percent higher than actual sales.

While there’s more product on the resale market, new housing units are likely to dry up given the halt in housing starts. The decline in new home construction has been described as “dramatic” so far this year: New home sales were already down 35 percent in April while housing starts were down 41 percent. In March the numbers were even worse, with housing starts down 64 percent from the same month in 2022. The trend has continued, and is blamed on high building costs, buyers’ fears that they’ll rise even higher during the building period, and that interest rates will raise financing costs as well.

“Even though many people want or need new homes, there’s little supply,” Sverre Movik of homebuilding firm Selvaag Bolig told DN. That can set off another “fundamental problem,” added Bård Folke Fredriksen of the Norwegian homebuilders’ association NBBL, because then there will be “an imbalance between supply and demand.” Fredriksen, a former politician for the conservative Progress Party, claims far too little new housing is being built in Oslo, Bodø and Tromsø, for example, also because of sluggish municipal planning processes and regulation.

Despite some warnings of another crisis in the housing market, most think prices will rise again next year or even later this autumn. That won’t help first-time byers, though, and heavy household debt remains a problem. Norwegians can borrow as much as five-times household income with down-payments (capital) of around 15 percent, and arrange payments that only cover interest rate costs and banks’ fees.

Some economists fear another situation like in the 1980s, when many young Norwegians were caught with high-interest-rate mortgages that were higher than the value of the homes they’d bought when prices peaked and then fell. “We knew we should all be prepared to handle higher interest rates,” wrote commentator Andreas Slettholm in newspaper Aftenposten last week, “but we really aren’t. ” Berglund



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