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Norway Regulator Fears Housing Bubble "Isn't Sustainable"
Amid the collapse in crude oil prices, the Norwegian central bank cut rates in December (after 1000 days on hold) and is likely to cut again as economic growth stalls. However, the country's financial regulator is warning falling interest rates risk pushing the Norwegian housing market beyond its breaking point into a "self-augmenting spiral." With prices up 8.1% YoY, and up 85% nationwide in the last decade, even Robert Shiller warned of Norway's housing bubble in 2012 - and since then household debt (and home prices) have surged. As Bloomberg reports, Morten Baltzersen, head of Norway’s Financial Supervisory Authority stressed "continued rapid growth in debt and house prices isn’t sustainable." Unintended consequences?
As Bloomberg reports, a combination of plunging oil prices and falling interest rates risks pushing Norway’s housing market beyond its breaking point, the financial regulator said.
Norway’s housing market, which Nobel laureate Robert Shiller all the way back in 2012 said was in a bubble, has been inflated amid an oil boom that has driven wealth creation and kept unemployment below 4 percent.
Norwegians have more debt than ever before, owing their creditors about twice their disposable incomes, a level that Olsen and FSA’s Baltzersen have said is unsustainable.
And it's about to get worse...
The economy of western Europe’s biggest oil exporter is now struggling to expand amid a slump in crude. The central bank cut rates in December and said there’s a 50-50 chance for another reduction, triggering a mortgage war as banks such as DNB ASA and Nordea Bank AB lowered rates to lure customers.
“Lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices,” Morten Baltzersen, head of Norway’s Financial Supervisory Authority, said in an e-mailed reply to questions this week. That could drive the housing market into a “self-augmenting spiral,” he said.
“I’m beginning to be a little bit worried,” Steinar Juel, chief economist at Nordea, said by phone in Oslo. Another rate cut from the bank would be risky and drive house price gains up by 15 percent, he said. “We could also have a situation where we really are in a bubble.”
Regulators have tried to slow the expansion...
In an effort to cool the market, Norway has introduced a number of measures including raising capital requirements, the risk weights that lenders assign their mortgages and capping loans at 85 percent of a property’s value.
But, the government rejected advice from the FSA for tighter regulations to slow debt growth.
The Conservative-led government last year allowed more flexibility in loan standards, allowing banks to lend up to 90 percent of a property’s value.
Leaving the regulator threatening once again...
Baltzersen said he has monitored the rise of house prices last year.... “Continued rapid growth in debt and house prices isn’t sustainable,” he said.
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Ironic really that American policy makers have never seen a housing bubble they didn't like and yet we see with Norwegian regulators that there are very clear consequences to playing in the currency wars (both at home and abroad)
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Sell that house now while you still can, pay off the mortgage, rent for a year or two, then buy your old house or one just like it in a couple years for cash.
Norwegians, take this excellent advice, and buy back your old house, and another one just like it in a couple of years for cash.
Easy solution.
That's why I up-voted him. You just gotta have the balls to pull the trigger on a decision like that. Fortunately, it worked in 2008, so it's not completely without precedent now.
I'm just talking shit, I am young and have always rented. I don't spend enough time in one place to buy a house , and don't want a huge liability hanging around my neck when I move. I've seen too many people think they were buying at a good time and would be able to easily rent the house out for more than their mortgage when they moved lose their asses big time.
WONDERING WHY ZH HASN'T PUBLISHED YET ANY ARTICLE RELATED TO THE ONGOING EVENTS IN NORTHERN ISRAEL ...BIASED JOURNALISM?
Tensions in the North: Not war – yet
Wednesday’s events do not mean a full-scale war is inevitable, but it is now a few steps closer.
http://www.jpost.com/Arab-Israeli-Conflict/Tensions-in-the-North-Not-war...
UPCOMING MATCH:
Zionist/Arab military coalition vs. Iran/Hezbollah/Assad's regime
MAKE YOUR BETS
IMPORTANT NOTE: this event won't be the match that ignites WW3, it will be just a regional conflict, short and extremely intense. Too bad that civilian populations in Arab countries and Iran are not prepared for the type of weaponry intended to use in this conflict...lots of DU ammo (and blame their governments).
This Norwegian (me) bought his apartment in 2006. I dont have any debt on it. Just money in the bank.
But I see my fellow citizens in complete euphoria/bliss about their situation. People sitting on 2-3-4-5 million NOK loans on their house/apartment. Anyone with 2 working braincells should be able to see that the house prices cant continue rising like this.
On the other hand, Norway is a bit Orangy to your Apples in terms of market/society. The big difference compared to USA for example is that it isnt easy to sack your employees. In Norway workers have a "safer" environment and the employer needs a very good reason to sack the worker. BUT if the market slumps and businesses start going under, there will certainly be a rise in unemployment and THEN you'll see the housing bubble bursting. Just like the late 1980s here in Norway.
The other factor is a rise in interest rates. But I dont see that one coming any time soon since the Norwegian central bank follows the US central bank. Personaly though, I feel that a rise in interest rates MUST come if there will ever be any kind of recovery in national economies around the world. The only question is what will be the catalyst event for that to happen. War or financial collapse?
"...since the Norwegian central bank follows the US central bank "
because the rates of the global reserve currency have an effect on the whole world. something that interestingly is seldom mentioned. currency wars are often a reaction to new, gigantic flows of dollars on other markets, including those in the various "carry trades"
Indeed. And until the American Troll turns to stone in economic light, then there will never be any recovery.
Once the ZIRP gets buried and the interest rates bounce up, things will get really ugly really fast for anyone with a lot of debt.
How many people did this? This actually doesn't work but if you haven't owned a house you won't know why and people who did sell houses in 2008, lost their money if it was in a MMF, lot's of people lost a lot of money in failed banks and plenty had closed deals on their houses and were in between. The articles about that were all over the place.
That hasn't worked for anyone yet, why should it now?
"The Conservative-led government last year allowed more flexibility in loan standards, allowing banks to lend up to 90 percent of a property’s value."
"Ironic really that American policy makers have never seen a housing bubble they didn't like and yet we see with Norwegian regulators that there are very clear consequences to playing in the currency wars (both at home and abroad)..."
Banker policy. Evidently, Norway has bankers.
With Erna Solberg having become prime minister of our country (consider that Anders Behring Breivik is a former member of her party), I am not sure what direction Norway is heading in. These are confused times for many.
I thought Anders Breivik was a youth member of FRP not Høyre... Either way, fuck Erna Solberg, she is a Bilderberger and she was for Datalagringsdirektivet (broad data collection on Norwegian citizens), so that leads me to think she is just another globalist viceroy just like the last one, who has moved up and is now the new (talking) head of NATO.... You have done what we asked of you, now have this prestigious and largely symbolic promotion. Sellout assclowns all.
Well give Morten Baltzersen the Captain Obvious of-the-year award.
Hmm Norway and Canada have cut interest rates alledgedly due to falling oil prices. Explain to me how the fuck this doesn't inflate already insane house prices.
"risk weights that lenders assign their mortgages and capping loans at 85 percent of a property’s value."
Gasp! 15% equity? In the US that's instant housing depression time. What are we at right now? 95%? 97%? It's there if you've got the patience and credit score to run the paperwork gauntlet. Shit, there's commercials on the TV every night talkign about VA loans at a full 100% of home value.
I remember when a typical home loan was 20% down. I asked "why 20%"? My Grandfather's answer (he was big into real estate): "Because anything less and they're not buying a home to live in it, they're speculating and they'll walk from the loan the minute something happens." I asked "Wouldn't that ruin their credit?". Answer: "below 20% they won't care. They'll walk anyway." This was from a conversation 30-35 years ago.
Now there's a perfect example of an Oxymoron: an "Unsustainable Bubble"
Who thinks up this DoubleSpeak ambiguous shit?
Cheesepopes?
Had to give you a +1 because I haven't heard 'cheesepope' in a long time. And knuckles, as obviously doublespeak as that statement is, and least they are actually calling it a bubble, which is a lot more honest and aware than our central planners have ever been. Much better than the bernank testifying before congress about how the worst that could happen would be a slower rate of growth in housing right before the bottom fell out.
Grassyass
I wrote about this recently - their housing bubble is the least of their problems - they have a ~$1 trillion dollar sovereign wealth fund, ~70% of which is sunk into equities. The NOK is one of the most stable currencies in europe, but if they don't keep an eye on their fund managers, they might see all of it flittered away in the coming months and as a consequence have a lot more to worry about than a potential housing market bubble. The good news is they seem to be rational people, the bad news is, their future is in the hands of the casinos and compusive liars who hold their pensions.
I've spent some think-time on these central banks cum "sovereign wealth funds." I have nearly convinced myself that central banks around the world are NOT buying stocks to diversify or to earn a potentially higher rate of return. Those terms are MEANINGLESS to any central bank that has their own printing press and could, if pressed, self-recapitalize against any losses even if they exhaust their existing capital.
I think it's about CONTROL (as it usually is). When SHTF, they have direct claims on the productive assets of the world. AND, if they own enough of them, they can DICTATE what those firms do. i.e. Centralized command/control via equity ownership.
Thoughts that are evil enough I sincerely hope I'm wrong.
Your ideas do have merit, after all many of the central banks do participate in proxy voting during general meetings and shareholder proposals, the purpose of which is to influence corporate governance.
Not quite sure it would apply to the Norwegians exactly, since the primary purpose of their participation was done with their ethical panel in mind. But I can see that other central banks without any sense of ethos may indeed take advantage to control productive assets. That's a frightening thought, as bad as corporations taking over governments but in reverse - another side of corporatism.
As for this potential housing market bubble, it should have been obvious when they decided to invest 5% of their SWF in the housing market in 2010. Every action, however well intended, always has consequences.
We don't have money any more, so we have "proto-money", things like houses and stocks and art and land. Oops too bad, they're denominated in that stuff previously called money, now better known as "confetti"
careful, though. Norway's sovereign fund is a separate entity from Norway's national bank
Hello old man. Quite so, and that's why I didn't know whether his fears would apply to the Norwegians. The more I look into Norway, the more interesting they become as a society.
They seem to use this massive sovereign wealth fund heavily invested in foreign stocks as a sort of ballast against any volatility in fx, so that while other countries are busy reacting to the tidal waves of USD, they stay relative to it. Besides, the more I look at their governance, laws, and ethics, the more I like them. I'm pretty sure someone out there can contradict my nascent impressions, but their government & people seem pretty decent.
Norwegian homeowners get ready to grab your ankles, the banksters are getting ready to rape you. Can you say...USA! USA! USA!
With the Fukushima/human crop dusting/ bullet train to nowhere/slackers paradise effect in full force in California and its leveraged lifestyle gaining momentum, one day soon, the look on old Shiller's face (could he have a better name?) is gonna be, like gold and true love, priceless.
I guess the whole Cali-will-fall-off-into-the-ocean thing was just a metaphor.
Only a fool would rule out a major earthquake in L.A. or S.F. It's still not in my top five as the reason for the "Real Estate Market Correction from Hell."
replace the word "Norway" with Australia. its worse.
Don't forget Canada!
In-laws got a property assessment in regional BC. The place is like 40+ years old and might sell for 300k. The assessment is for 450k.
I'd hate to see what the 10 year old, 450k listed mcmansions in the same city were assessed for.
Sweden is another country with a gigantic housing bubble about to burst.
Where is Iceland when you need em!
Chillin
Yet still fuming underneath.
I did see that Senator from Alaska came roaring in all fire and brimstone.
They grow huge veggies in Alaska. 800lb pumpkins, 80lb zuchinni's.
"No need fer erl to do it neither."
Great fishing, hunting, homesteading.
I imagine there's a market for all that debt too. Norway does have a huge sovereign wealth fund. Nothing beats being the Bank tho.
Lot of gold in Alaska.
Almost zero is there currently.
Hmmmmm.
Wonder why that is....
The situation is about the same, if not worse, in Sweden. What's really pathetic is the shit you get for these crazy prices. Tiny houses, with tiny rooms and no garage for 400K USD.
The FED discovered problems with Central Bankers toolkit back in 2008.
In the days before Greenspan (BG) Governments used targeted policies to deal with trouble spots.
Initially Greenspan's approach of monetary policy was criticized as being too broader a brush.
After everyone adopted Greenspan's ideas we realise the critics were right.
Bubbles blow up until the greatest fool has been found.
Back by popular demand: https://www.youtube.com/watch?v=anGXld-4hCA
The great Norwegian challenge has been how to handle oil windfall wealth: they used to be on average pretty fit, and pretty sensible on the whole. There was a strong egalitarian and independent sovereign nation mentality. But Norway has devolved into an indolent little rabid lap dog for the Wannabee Hegemon, helping to destroy Libya here, foaming at the mouth over Putin there. The trend is degeneration.
Too bad. I used them as a model for sane financial and governance management.
"struggling to expand amid a slump in crude" - nice assumption that it isn't a trend.
They cheapened their currency to help the state owned oil corporations to export more oil at the same time ballooning Norway's housing market. Falling crude prices, and bubbles. Oh my.