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Norway home building set for 38-year high, price drop possible
[OSLO] Norway is set to build around 38,000 homes this year, the most since 1979, driven by ultra-cheap credit and soaring values, a leading forecaster told Reuters on Tuesday, as some experts warned of a possible price shock.
After house prices surged 12.8 per cent year-on-year to record highs in December, most analysts believe they will level out in 2017 or 2018 but, with supply now matching demand, prices might also drop.
Forecaster Prognosesenteret increased its forecast for 2017 to 38,000 new homes in 2017 from its previous estimate of 33,000. "The level (of construction) is so high right now, and at least equal to the actual need, so it is hard to see further growth in construction in 2018 and 2019," Prognosesenteret economist Kjell Senneset said.
Statistics Norway (SSB) said on Tuesday 36,530 building permits were issued in 2016, up 18.1 per cent on 2015. From 2000-2015, Norway's average annual housing starts was 27,261 units, SSB data showed.
Deputy central bank governor Jon Nicolaisen said this month that 2016 was the first time in years that home building had exceeded growth in households, and that the problem of under-supply had begun to turn around. "If this goes on for a long time, we could end up in a situation where it is difficult to sell. Experience shows that the turnaround can happen rather quickly, so there is a warning in this," he said.
Christian Dreyer, head of lobby group Real Estate Norway, said: "There are many risk factors (to prices), as population growth is falling quite sharply and home construction is getting closer to a balance." Population growth eased to 43,400 people in 2016, or 0.83 per cent, the lowest level in a decade, according to SSB. "We still expect a strong housing market this year and I don't think a steep fall is likely in the short term, but at the same time the debt level in Norwegian households is high, and if interest rates go up, many households will struggle," Mr Dreyer said.
Brokerage DNB Markets predicted house price growth of just 1 per cent per year in 2018 and 2019, but also warned of a potential scenario in which prices fall by 20 per cent over a four-year period.