Factors driving house prices in Norway
The Norwegian government is taking measures to stimulate activity in the housing market. One such measure was to reduce the down payment on property purchases from 15% to 10%. However, analysts warn that this move could lead to a significant increase in house prices in Norway.
It is worth noting that the local sector is performing better than in neighbouring Sweden and Denmark. However, skyrocketing prices are limiting opportunities for first-time homeowners. Another factor contributing to rising costs is the loosening of lending rules that will come into effect in 2025.
Norway’s household debt-to-income ratio has improved significantly over the years. However, at 238%, it is still one of the highest in the region. Regular increases in house prices exacerbate the situation, increasing the risks to the financial system.
Norway house market forecasts
Analysts have developed several scenarios:
– average property values in Norway will increase by 57% by 2028;
– in the baseline scenario, prices are expected to rise by 12.6%.
Forecasts depend more on the level of Norges Bank and Euribor interest rates, which can influence developments. Lower interest rates favour stronger house price growth.
The Norwegian regulator expects price growth of 5-8% by 2027. In a favourable scenario, the debt-to-income ratio will fall to 205% by 2028. In an adverse scenario, the ratio will not fall below 223%.
As in other countries, the Norwegian property sector has been affected by rising interest rates. However, in contrast to many different markets, activity in the commercial property segment has remained strong. This has boosted rental income, which has been a lifeline for many companies. Nevertheless, the market has a high level of debt, which negatively impacts its stability.
Mathis Kongsrud of the Financial Supervisory Authority highlights the dangers of the downturn. It could lead to mass bankruptcies in the retail and construction sectors. Rising vacancy rates will exacerbate the situation by making it more difficult to rent office space. Despite these risks, the economy has so far proved stable.
Features of the Norwegian market
Norway remains one of the countries that has not yet cut its key interest rate. At the same time, the volume of property sales continues to grow. It reached record levels in August 2024. However, a slight slowdown has been observed since the autumn.
There have also been changes in market trends. Buyers have started to turn to the secondary market, which has led to a 50% drop in new-build sales over the past two years.