Norwegian house market starting to ease, housing prices likely to have dropped further in June – Danske Bank

The Norwegian housing market is easing after many years of solid growth in housing prices due to a combination of greater supply and tighter credit standards. Prices fell 0.7 percent sequentially in May, the largest monthly drop since the financial crisis and entirely driven by declining prices in Oslo.

As interest rates are low, jobless rates are declining and consumer sentiment is rising, it is significant to highlight that this is considered a correction following solid gains for nearly three years. Furthermore, even if market is now evidently more balanced, there are no signs of a considerable over-supply. The inventory-to-sales ratio is well below the historical average.

But there is a risk of a greater correction having more severe impacts on domestic growth and hence monetary policy. In its latest MPR, the Norges Bank highlighted that the financial risk linked with the housing market is an argument for ‘a cautious approach to interest rate setting… Notably lower-than-projected house price inflation in the period ahead could have a dampening impact on growth in the Norwegian economy, partly as a result of lower housing investment.’

“Hence, we expect any signs of a stronger correction in the housing market to trigger speculation of a more dovish Norges Bank going forward”, stated Danske Bank in a research report.

Norway’s housing prices are expected to have fallen further 0.7 percent in June driven by the Oslo market. If this is correct, it would be slightly weaker than anticipated by Norges Bank in the MPR, added Danske Bank.

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