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Norges Bank increases estimates of home price inflation. The bank’s forecasters now expect price growth of 3.7 percent this year and 5.2 percent next.
Tromsø illustration image.
Marianne Løvland / NTB scanpix
Published:,
This is stated in Norges Bank’s monetary policy report. It will be presented on Thursday, at the same time as the decision to keep the interest rate unchanged at a record low of zero percent.
Norges Bank expects house prices to grow 3.7 percent this year, while in June it expected growth of 2.7 percent.
Next year, the bank expects growth of 5.2 percent, compared with an estimate of four percent four months ago.
The central bank’s outlook has varied widely since the crown crisis (see figure below on the case). In May, the bank believed that house prices would drop this year and cut interest rates to zero percent for the first time in history.
Just a month later, the bank’s forecasters turned around and believed that house prices would rise this year, following stronger development in the housing market and lower-than-expected unemployment figures.
“Lower interest rates and temporary easing of mortgage regulations, which last until September, may have stimulated the housing market more than we assume,” Norges Bank writes in a monetary policy report.
“The increased willingness to pay for housing may also be related to increased use of home offices and the fact that consumer opportunities have been limited,” the bank writes.
Don’t think buyers are irrational
Norges Bank has conducted analyzes that suggest that the growth in house prices over the past 20 years can be explained in particular by higher incomes and lower interest rates.
‘It is estimated that lower interest rates explain about a third of
the rise in house prices over the period, “writes Norges Bank.
“The analysis shows that house prices are hardly driven by irrational home buyers who offer prices to unsustainable levels. In isolation, this reduces the risk of a sharp drop in prices, ”the bank writes.
However, he does not rule out a fall in prices, if households lose income or interest rates rise sharply. In that case, you can create problems for the business community and banks by tightening their belts and reducing consumption, Norges Bank notes.
The debt burden will rise from an already high level, the bank believes.
“We expect credit growth to pick up somewhat in the near future. This is due to higher billing and prices in the housing market and increased purchases of other assets that are partially financed by debt,” writes Norges Bank .
Can feed debt
The Norwegian Real Estate Association is pleased that interest rates appear to remain low until the second half of 2022.
– Good for the housing market, says CEO Carl O. Geving of the Norwegian Real Estate Association in a comment.
– At the same time, there is a certain risk that low interest rates will drive up house prices and people’s debt, especially in the Oslo region, where supply is lower than normal and rates of interest will have a stronger impact, he says.
Geving believes that tightening mortgage regulations starting in the fourth quarter will cushion some of the effect of low interest rates, especially in Oslo because banks have less flexibility to make loans there than in other parts of the country.
– However, it is highly uncertain how a tighter lending practice will affect the strong demand for housing that characterizes this market, says Geving.
Waiting for more investment in housing
Rising home prices and rising new home sales mean Norges Bank will also raise its projections for home investments in the future.
They still believe that investment will fall this year, but less than previously thought. The bank expects housing investments 5.7% lower this year than last year.
In 2021, however, investment in housing will rise again, the bank believes.
See how Norwegians’ mortgage rates have changed recently.
