Norway home prices rise in November, slightly below market expectations

Housing prices in Norway rose during the month of November, coming in slightly below what markets had earlier anticipated. The annual growth rate fell marginally, but that was caused by an unusually strong growth in November last year.

Norwegian home prices rose 0.8 percent from October to November (seasonally adjusted), tad lower from expectations of a growth of 0.9 percent m/m. Growth declined from 12.0 percent y/y in October to 11.6 percent in November.

There are large regional differences in house price inflation. In Oslo, prices have risen most over the past year, with a growth of 22.0 percent y/y in November, up from 21.7 percent in October. House price growth is weakest in Stavanger, with a fall of 3.8 percent last year, but the drop rate has been reduced in recent months.

That housing prices are rising, can to some extent be explained by fundamentals, particularly the low interest rates. However, current growth seems unsustainable - especially in Oslo. The longer this trend in the housing market continues, combined with increasing household debt, the greater the risk of a sharp turnaround with potentially significant adverse effects on the Norwegian economy.

"We believe the risk that financial imbalances are building up is an important argument for Norges Bank to keep the key policy rate unchanged at the meeting next week, in spite of some key figures on the weak side of what the central bank has expected," DNB markets commented in its latest research report.

Meanwhile, the Norges Bank does not want to fire up the housing market further with a rate cut now, although the central bank has previously stressed that other authorities must be the first line of defense to ensure financial stability.