Housing Crash Dodged in Norway, But Intervention Door Stays Open

(Bloomberg) -- Is Norway’s housing market about to sink into a correction?

The concern is that restrictions on borrowing are coinciding with a build-up in supply just as the cycle of extreme monetary stimulus is coming to an end. No one really knows how the property market in Scandinavia’s richest economy will react.

But Norway’s finance minister, Siv Jensen, says the data she sees indicates that measures taken to date are “actually working now, the market is cooling down, so I don’t think there is any drama to this at this point. We see a cooling-down,” she said in an interview in her office in Oslo on Wednesday.

“But of course, I do pay close attention to this, and we’ll take steps if necessary.”

Housing Crash Dodged in Norway, But Intervention Door Stays Open

After surging 75 percent since the end of the financial crisis, Norwegian home prices may have reached a tipping point. For the past six months, prices have declined and are now about 3 percent below their peak. Meanwhile, household debts have grown, rising from 120 percent of disposable income at the start of last decade to 223 percent now. To be sure, households are paying lower interest rates on that debt than they were in 2000.

House prices may fall further, but a strong downturn that would have a significant effect on the economic outlook is not very likely, according to Nordea Bank economist Erik Bruce.

Housing Crash Dodged in Norway, But Intervention Door Stays Open

Read more on Norwegian housing measures here

Jensen said it’s hard to address the market forces that regulate supply and demand, but the credit side “is a different story.”

“That has to do with the build-up of debt in households for a very long period of time, I think we need to separate these two issues from each other,” she said. “I know there are certain voices in the public debate that look at this differently, but I still believe that there is no need for us to take any steps for the time being.”

Norway is western Europe’s biggest oil and gas producer. It has just emerged from the worst oil-industry crisis in a generation. Housing investments, as well as record government stimulus, had played a major part in seeing Norway through the oil crisis. 

The government, which is backed by a $1 trillion sovereign wealth fund built on Norway’s petroleum riches, has long talked about the need for the country to become less oil reliant.

“We know that we need to stimulate for more investments in other sectors of our economy,” Jensen said. “We experienced when the oil prices dropped that the Norwegian economy was very vulnerable.”

The main external risks Norway is girding for include the threat of a so-called hard Brexit, Jensen said. The country sends about 20 percent of its exports to the U.K., mainly in the from of natural gas. As a non-EU member, Norway’s not part of negotiations on Britain’s exit from the bloc. Jensen said she’s also alarmed by global signs of deteriorating trade relations.

“The tendency towards more protectionism in many parts of the world” is a risk, she said. “These are the risk factors we have defined, that we cannot really control, but they are out there, and of course they increase the amount of conflicts between countries globally.”

©2017 Bloomberg L.P.