Sales of new homes and holiday homes fell again last month, car sales have crashed and consumer price hikes are easing if not falling. That all helped prompt Norway’s central bank to drop another hike in interest rates for the first time this year.
Norway’s key policy rate was kept at 4.25 percent last week because Norges Bank’s committee in charge of monetary policy and financial stability thinks pressure on the Norwegian economy is easing. Inflation remains well above the bank’s 2 percent target and the labour market is still tight, but unemployment has risen and consumer price hikes are tapering off and even falling in some cases.
“Monetary policy is now having a tightening effect on the economy, and the full effects of the past rate hikes are yet to be seen,” stated the committee when explaining why it opted against another rate hike. It added that its policy rate is now “likely close to the level needed to tackle inflation.”
It was a relief for all those who’ve seen mortgage payments jump along with those on car- and other consumer loans. Housing prices are also easing in a much chillier real estate market. The days of bidding battles and quick home sales are over, with prices falling an average 1 percent in October even though hardly any new homes are being built. That can eventually lead to higher demand than supply and a new round of price hikes later, but for now, Norway’s formerly hot real estate market has sobered up.
Not only have housing sales fallen, consumers also seem to be putting off sales of big-ticket items like cars and furniture. Norwegians aren’t spending anywhere near the amounts tied to home remodelling that soared during the pandemic, and some veteran furniture retailers are going out of business.
New car sales, meanwhile, fell 28.9 percent in October compared to the same month last year according to the agency in charge of new car registrations. Only 8,925 new cars were registered in October, bringing total sales and registrations so far this year down by 9.4 percent.
“Many are now extremely careful about making new car purchases a priority,” Øyvind Solberg Thorsen of the car registration agency OFV told new bureau NTB last week. “Car sales have really shifted into low gear.”
Norway’s hytte (holiday home) market has also collapsed. Newspaper Dagens Næringsliv (DN) has been reporting how sales of both lots and hytter have all but ground to a halt, with one developer reporting that only two of 100 hytter he’d planned to build in Hallingdal attracted buyers. New projects are being scrapped and many construction firms specializing in hytter, like Rusånes Fabrikker in Saltdalen, have been laying off workers.
“It’s difficult to say whether we’ve hit bottom, but I think we’re close,” Stein Plukkerud, leader of the DNB-owned Mosetertoppen project at Hafjell, told DN. It planned to built as many as 1,300 cabins and holiday condominiums but after “fantastic” sales during the pandemic (when travel abroad was difficult if not impossible) “we’ve only sold four condos and one lot so far this year,” Plukkerud said.
Construction of new homes, meanwhile, has hit its lowest point ever. Sales in September were down 38 percent from the same month last year and the trend has continued this fall. Housing starts were 62 percent below September 2022 and 50 percent lower in the third-quarter as a whole. “This is a crisis with no sign of improvement,” Lars Jacob Hiim of homebuilder Boligprodusentene told news service E24. “The third quarter this year marked the lowest housing starts since we started keeping track in 1999.”
Industry experts blame higher interest rates and much higher building costs, and that also helps explain the central bank’s decision against another rate hike now, despite Norway’s weak krone that might have risen on higher rates. Central bank governor Ida Wolden Bache said the bank committee’s “current assessment of the outlook” suggests the policy rate will be raised again in December, but several Norwegian analysts and economists think rates may now have peaked.
“I think we’ve seen the last interest rate hike,” predicts Kjetil Olsen of Nordea Markets. “If the krone doesn’t weaken even more and price growth comes in on the downside, there won’t be another rate hike in December.”