After a steep rise in interest rates, Handelsbanken believes house prices will fall this year, followed by interest rate cuts and a strong recovery in the coming years, especially in Oslo and Stavanger.
– We warn that the coming upswing in Oslo could again be uncomfortably strong, if the interest rate trend is weaker than what we now envision, says senior economist Sara Midtgaard in connection with Handelsbanken’s recent report on the housing market.
While the bank believes that the capital will see a “moderated” house price fall of 2.2 per cent this year, it will turn over the next few years to 5.1 per cent on average in 2025. (See table below)
The explanation is a combination of a rise in interest rates to a peak of 3.75 per cent this year from the current level of 3.0 per cent, and interest rate cuts from the third quarter of next year. In addition, high population growth and extremely low construction activity can lead to too few new homes over time.
Should the rise in interest rates not be as strong as expected, or should the interest rate cut come earlier, it will particularly lift price growth in Oslo, where the interest rate effect is greatest, the economist points out.
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Norges Bank is struggling against the odds
– Will be able to close the door
Handelsbanken’s models show that if the mortgage interest rate changes by one percentage point, house prices in Oslo change by 16 per cent in the long term. This is clearly higher than they find on a national basis, where such a jump in interest rates results in a long-term change of 11 per cent.
Changes in income levels also have the greatest impact in Oslo, according to Handelsbanken.
– Although the downside risk is greatest in Oslo in the short term, there is also reason to believe that the coming upturn will be all the stronger than in the rest of the country, says Midtgaard.
– This will again be able to close the door to more and more people who want to enter the market.
But Stavanger is also an area where the next upswing may eventually gain more speed, as a result of increased oil investments which probably provide more jobs and thus also ensure relatively strong local wage growth.
Interest and runaway housing prices
– What will happen if house price inflation becomes uncomfortably strong?
– We know that Norges Bank has previously also tried to maintain an interest rate level that corresponds to house prices not running wild and a debt growth that does not pick up too quickly, but I think the first thing they think of is changing the mortgage regulations, says Midtgaard.
She herself believes that what would really work was to do something about housing regulation and the processing time for housing permits in Oslo, so that there is a stimulus for increased housing construction.
On Wednesday, we will receive the housing price statistics for March from Eiendom Norge. Handelsbanken expects that they will show growth of 0.5 per cent, or 0.1 per cent adjusted for normal seasonal fluctuations.
Steep fall in commercial property
However, the rise in interest rates seems to hit commercial property, such as office and shop premises, harder.
Handelsbanken still expects a fall of 25 per cent in such selling prices from the peak last summer. Prices have already fallen 10 percent.
– The risk is clearly on the downsidethe downsidemeans that it is more likely to get worsewe cannot ignore the fact that there will be an even bigger fall as well, says Midtgaard.
Norges Bank has warned several times that a fall in the price of commercial property can cause large bank losses. Historically, commercial property is the sector that has caused the banks the biggest losses measured in kroner.
