Norway housing prices extend gains, adding to rate pressure

HOME prices in Norway increased for the fourth consecutive month in March, in a sign that the housing market is stronger than expected by the central bank as it tries to rein in inflation.

Data from Real Estate Norway on Wednesday (Apr 5) showed that home prices rose 0.5 per cent last month from February on a seasonally-adjusted basis, after a revised 0.4 per cent gain in February. Norges Bank had not expected an increase after adjusting for seasonality. 

The central bank is using more interest-rate hikes to slow price growth before it becomes entrenched; at the same time, it is trying to minimise the impact of such hikes on the real economy.

Marius Gonsholt Hov, Svenska Handelsbanken’s chief economist for Norway, said: “Even though we expect Norges Bank to continue to push its key policy rate all the way up to 3.75 per cent – implying further rate hikes in May, June and September – we maintain our view of a soft landing for the housing market this year.”

Norway’s housing market also contrasts with those of its Scandinavian neighbours. Sweden has become one of the frontrunners of the global housing cooldown, with Danske Bank expecting its peak-to-trough price decline to swell to 25 per cent from the current level of about 12 per cent. In Denmark, home prices have fallen by about 10 per cent.

Norges Bank governor Ida Wolden Bache said last year that the difference could be explained partly by the more limited supply of new homes in Norway. Demand was also boosted from the start of the year, after the government eased mortgage lending rules for borrowers’ ability to cover interest expenses.

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“A limited supply side, coupled with elevated population growth and a sharp acceleration in nominal wages, should cushion the blow in nominal terms,” Handelsbanken’s Gonsholt Hov said.

Still, he said prices are set for another slide towards the middle and end of 2023. The lender forecasts an average annual decline of 2.1 per cent in prices for 2023; this comes in lower than Norges Bank’s prediction of 2.9 per cent. BLOOMBERG