Norwegian Chief Economist predicts housing market downturn and warns of rising interest rates

OPERAEN (Nettavisen Økonomi): On Tuesday, Eiendom Norge gathered 300 guests for its large annual conference.

Chief economist Harald Magnus Andreassen at SpareBank 1 Markets has for many years been known to forecast the housing market down. At the latest this autumn, he believed in a decline of at least 10 per cent.

– But I will not be a prophet in my own country, at least not yet, he said with a certain self-irony.

Andreassen had been given the topic “Eternal upswing in the housing market?” The answer to that was a clear no.

Everyone has been through a housing crisis

– Almost all rich countries have been through a housing boom. Some countries have had two rounds, some countries have had three rounds. The average fall in these rounds has been 31 per cent if we correct for price inflation. The actual fall has been 23 per cent.

– It took an average of ten years before the prices were back to the same level, Andreassen warned the assembly. But he would not give any exact forecasts about the housing market going forward.

– I know that I don’t know. You know I don’t know.

Figures from Eiendom Norge for May showed an increase of 0.8 per cent. This is a normal increase for the month. So far this year, prices have increased by 7.7 per cent. The rise is a microscopic 0.1 per cent over the past twelve months.

Interest rates are important for the housing market. Andreassen has been concerned that interest rates have been kept far too low for too long.

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We didn’t need a low interest rate

– We got low interest rates in Norway after the financial crisis. Not because we needed it, but because the other countries lowered interest rates. They used low interest rates to pay off debt.

– Norway is the country with the highest debt in relation to income. In rich countries, households have reduced their debt as a proportion of income. The rise in interest rates we are seeing now is malignant. It is not matched by a corresponding growth in the economy, warned the chief economist.

Interest rates are now rising because Norges Bank and other central banks must get control over price inflation. But growth in the Norwegian economy is expected to fall sharply this year. Unemployment is on the rise. The economy must cool down.

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Low interest rates do not help

– If the economy is bad, it will not be helped by low interest rates, said Andreassen.

The chief economist believes there will be no return to the interest rates we had during the corona pandemic.

– Interest rates will not be super low again unless there is a new crisis, said the chief economist.

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Shaped by the banking crisis

Andreassen was shaped as an economist by what happened during the Norwegian banking crisis in the early 90s. Norwegian house prices fell by around 40 per cent from 1988 to 1992.

A crisis in the economy usually starts in the housing market, as during the financial crisis 15 years ago,

– My best analysis as an economist is that something fundamentally went wrong in the housing markets in rich countries in the years before the financial crisis. The downturn in the economies comes after a lot of debt has been taken on.

– Almost all downturns in the economy come after a downturn in the housing market, the chief economist told the assembly.