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– High growth in house prices may in itself be a driving force for higher growth in house prices. It’s worrying, Statistics Norway researcher Thomas von Brasch tells DN.
On Friday, Statistics Norway (SSB) released this year’s first edition of the Economic Trends report, with new estimates for the Norwegian economy through 2024. The agency expects house prices to rise more than nine percent this year.
Brasch explains that he has been surprised by the sharp rise in house prices over the past year and believes there is great uncertainty associated with future developments.
– The fundamental conditions have gone in different directions, he says.
The crown crisis has led to high unemployment and many have been laid off for short and long periods. The fact that many people lose income points in the direction of lower house prices, Brasch believes. At the same time, the key policy rate has dropped to zero percent, leading to historically low mortgage rates. This, in turn, drives up house prices.
It will take several years to increase the key policy rate
Statistics Norway expects house prices to remain low going forward and does not believe that the key policy rate will return to the level it was before the pandemic before 2024.
– The central bank spent a couple of weeks cutting the key interest rate from 1.5 percent to zero, but will spend several years bringing it to the same level, Brasch says.
He expects Norges Bank to raise the interest rate to 0.25 percent during the latter half of this year, and the interest rate to gradually increase to 1.5 percent by the end of 2024.
Norges Bank’s key interest rate lays the foundation for the mortgage rates offered by banks. Norges Bank slashed its key interest rate when the crown outbreak last spring hit the Norwegian economy hard. Since May 7 last year, the key policy rate in Norway has been at a record low of 0.00 percent.
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When Statistics Norway presented estimates in December, the agency expected the interest rate to increase from mid-2021 onwards. Therefore, the agency believes that it will take somewhat longer before the key policy rate is increased than I was thinking of December.
Bumpy road
It will also be several years before the Norwegian economy returns to what can be called normal levels, Brasch believes.
– Now the economy is in slow gear and we expect it to do so until the summer. With vaccination and easing of infection control measures, the economy will give up starting in the summer. However, it will be a difficult situation in the coming years, he says.
On Thursday, it was announced that the AstraZeneca vaccine had been discontinued for the time being and that Norway will receive fewer doses of this vaccine than expected.
Work on the forecast report was completed on Wednesday and therefore Statistics Norway has not anticipated this news. Brasch notes that they are aware that there may be both positive and negative news in the future.
– It’s a bumpy road. All things being equal, the news that arrived on Thursday is negative for the outlook. The longer it takes before reopening, the longer it will take for the economy to normalize, he says.
Statistics Norway slightly lowers the estimate of value creation in the Norwegian economy in 2021 and expects production on the Norwegian mainland, measured by gross domestic product (GDP), to increase by 3.3% this year. By comparison, Statistics Norway estimated that continental GDP would increase 3.7% in 2021 in December.
Expect high house price growth
The agency’s estimates imply a total home price increase of 19 percent in the forecast period.
In the report, Statistics Norway writes that the interest rate cut to a record low of 0.00 percent, as well as signs from Norges Bank that the key policy rate would remain low for a long time, they have likely contributed to the strong growth in house prices over the past year.
– The record savings rate with associated liquidity may also have contributed to higher house price growth in recent months, the report notes.
In addition, it is highlighted that the evolution of income, debt, population, real interest rates and the supply of housing will determine the evolution of housing prices in the future.
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More to expect interest rate hikes in autumn
Several economists and analysts expect Norges Bank to increase its interest rate trajectory when the central bank presents its interest rate decision on Thursday of next week. Norges Bank’s interest rate trajectory illustrates the central bank’s expectations of the key policy rate. It is presented together with the Monetary Policy Report four times a year.
Swedbank economists believe the central bank will raise the key interest rate this fall, while Norges Bank’s interest rate trajectory since December has not signaled a rise in interest rates until early next year.
– Norges Bank’s main outlook is that “folks, now you must wait for an interest rate normalization,” chief economist Øystein Børsum told DN earlier this week.
DNB Markets believes that the uncertainty surrounding the launch of the crown and the vaccine will weigh heavily on the central bank. In a report released Thursday, senior economist Kyrre Aamdal writes that he expects the interest rate trajectory presented next week to indicate a 50 percent probability that the interest rate will increase in December this year.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases via a link, which leads directly to our pages. Copying or other use of all or part of the content can only be done with written permission or as permitted by law. For more terms, see here.
