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Caught Between A Housing Bubble And Falling Crude Prices, Norway Will Invest Oil Riches In Foreign Real Estate

Tyler Durden's picture




 

Norway is stuck between a rock and a hard place. Last week, the Norges Bank defied market expectations by leaving rates unchanged citing an overheating housing market. Here’s the statement

"The key policy rate was reduced in December to counter the risk of a pronounced downturn in the Norwegian economy on account of lower oil prices. So far, the effects on the real economy have been relatively small, and house prices are still rising at a fast pace. The key policy rate has therefore been left unchanged", says Governor Øystein Olsen.

...and a bit more from the bank…

Banks have lowered their residential mortgage rates by a little more than ¼ percentage point. House prices are still rising at a fast pace and are somewhat higher than projected in December. The rate of household debt accumulation has been slightly lower than that projected, but debt continues to rise faster than household income.

As a reminder, here’s what the rise in property prices looks like: 

Clearly, aggressively lowering rates in such an environment could be a decidedly risky proposition because, as the country’s Financial Supervisory Authority warned in January,   “lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices [causing a] self-augmenting spiral.” As bad as self-augmenting spirals are, some commentators think the central bank may be endangering the economy by being too slow to pull the trigger on rate cuts. Here’s more from Bloomberg

The difference between market expectations and what the bank did “is more a matter of timing and perhaps different weighting of different types of risks,” Olsen said.

 

The government is also working on plans to cool a run-away housing market. Norwegians owe their creditors about twice as much as they make in disposable incomes, more than at any time in the country’s history. House prices jumped about 9 percent in February from a year earlier to a record high…

 

Olsen’s decision to hold rates was “ill-advised,” said Kari Due-Andresen, senior economist at Svenska Handelsbanken AB. “The housing market is not what’s going to tip the economy.”

 

She sees Norges Bank being forced to act on its signal for another cut as early as May, followed by more easing in December. “It takes time for the shock to hit the whole economy, I think we will continue to fare worse and worse as we go forward -- then the housing market will cool.”

Meanwhile, the Supervisory Authority begs to differ and last week proposed a new set of requirements on residential mortgage lending citing the increasingly precarious situation:

There is a risk that the prospect of long-lasting low interest rates and easy access to credit will cause the strong growth in debt and house prices to persist. That would further increase households' debt burden and help to maintain demand for goods and services for a time, but such a development is not sustainable. The risk of a subsequent sharp setback and financial instability would thus increase.

 

Finanstilsynet concludes that it would be most appropriate to establish requirements for lending practices in the form of regulations. This course of action is necessary in order to remove or strongly curb banks' scope to deviate from the standards for residential mortgage lending practices.

All in all, the country is truly backed into a corner: ease too much and the housing bubble becomes even more unsustainable, don’t ease enough and the oil-dependent economy gets it. 

Amidst the uncertainty, Norway’s nearly $900 billion sovereign wealth fund (the largest in the world) is keen on being a source of stability in an increasingly unstable world — which is why it’s planning on spending the country’s oil revenue on “a lot” of Asian skyscrapers and shopping malls. Here’s more from Bloomberg:

The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about $18 billion, or 2.2 percent of its assets, in real estate last year, and is seeking to build that share to 5 percent.

 

The focus is on specific markets rather than sectors, Kallevig said.

 

“When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the center of Tokyo or the center of Singapore.”

 

The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about $18 billion, or 2.2 percent of its assets, in real estate last year, and is seeking to build that share to 5 percent.

 

The focus is on specific markets rather than sectors, Kallevig said.

 

“When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the center of Tokyo or the center of Singapore.”

Fortunately, the fund has a sterling track record when it comes to managing risk. For instance, there was the extraordinarily prudent bet on Greek debt in 2010 on the basis that the fund’s investment horizon was “infinity” (via Bloomberg): 

Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said in an Aug. 27 interview. “It is important when you look at the time scope of the fund and the investments that there should be a portion of active management.”

Fast forward to 2012 (Via FT): 

Norway’s oil sovereign wealth fund has sold all its holdings of Irish and Portuguese government debt and reduced its ownership of Spanish and Italian bonds as part of a continuing protest over its forced participation in Greece’s debt restructuring.

So Norway, we wish you the best of luck as it certainly appears you’ll be needing it given that the Norges Bank is facing a lose-lose scenario where leaning one way inflates an epic housing bubble and leaning the other risks exacerbating the negative effects of falling crude prices and speaking of crude, your oil wealth is being invested in Asian properties by the same people who once thought it was a good idea to load up on Greek bonds. 

 

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Mon, 03/23/2015 - 20:38 | 5920118 kowalli
kowalli's picture

All fixed

Mon, 03/23/2015 - 20:48 | 5920147 Publicus
Publicus's picture

Idiots that do not realize that money is not wealth, nor are assets.

The people are wealth.

Mon, 03/23/2015 - 21:07 | 5920225 silverer
silverer's picture

Absolutely.  That can't be said enough.  In fact, the value of any currency is not the tangible item presented in the outstretched hand, it comes from men's hearts, apparently a fact lost on almost all the world's leaders.

Mon, 03/23/2015 - 21:30 | 5920291 knukles
knukles's picture

(background music from The Lone Ranger , "William Tell Overture", voice over by Walter Winchell)

Look, it's Krugman Man to the Rescue!

                                      "MOAR, Just anything a whole lots MOAR, Until Way the Fuck Too Much is Just About Right!"

Mon, 03/23/2015 - 21:57 | 5920370 markmotive
markmotive's picture

At least Norway has a wealth fund. Alberta basically pissed their oil revenue away...

http://www.planbeconomics.com/2015/03/alberta-vs-norway-how-norway-becam...

Tue, 03/24/2015 - 04:06 | 5920869 The Black Bishop
The Black Bishop's picture

Well, being a Norwegian living in Norway, I will say that I dont believe for a second we will see much from that "wealth fund" in the future. We're gonna loose 50-80% of that money once the shit really starts flying.

 

The only reason that the Norwegian housing market didnt crash yet is because of strong employment security. Companies cant terminate employees without good reason. But bankrupcy IS a good reason so once that snowball starts rolling and oil prices plumet some more, things might get nasty in housing also. At least this was what happened back in 1987.

 

And the worst part about Norwegian housing debt is that it is NOT the same loan model as in the US. You can NOT just step away from your house if the mortage goes under water. If you have to sell your house with a loss your will PERSONALY be liable for the loan that is left over. And that will stick to you and make it completely impossible to buy a new home until its payed off.

 

I'm SO glad to have no debt but own my own apartment. No axe over my head.

Thu, 04/09/2015 - 00:52 | 5974181 GoinFawr
GoinFawr's picture

"Well, being a Norwegian living in Norway, I will say that I dont believe for a second we will see much from that "wealth fund" in the future. We're gonna loose 50-80% of that money once the shit really starts flying."

The echochambermaidens really can't say that enough around here. "Transitory!" "Fleeting!"A decade passes like nothing for the Fabulously Fugacious Phreak Sisters.

FWIW:'Your' SWF did just fine in 2008-2009 last time I checked. Quality staff; seems to me. Even if you lose 80 percents you're still in the black, unlike, well, pretty much everybody else. That's still ~ 35k kr for every man, woman and child? BOO HOO 'You' got 99 problems, but national debt peonage ain't one.

 

 'your' private debts? well that's none of my damn business; people will sign their names.

Thu, 04/09/2015 - 00:24 | 5974172 GoinFawr
GoinFawr's picture

Still, at least they are 'idiots' capable of balancing a chequebook, non?

Mon, 03/23/2015 - 23:55 | 5920617 one_hundred
one_hundred's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/ezLA00

Mon, 03/23/2015 - 20:41 | 5920124 wendigo
wendigo's picture

I thought Scandinavians were smart? 

Mon, 03/23/2015 - 20:44 | 5920137 nmewn
nmewn's picture

They are, just ask one, they'll tell ya...lol.

Tue, 03/24/2015 - 04:08 | 5920872 The Black Bishop
The Black Bishop's picture

Nah, pretty much sheeple like the rest of the west. Brainwashing 24/7.

Mon, 03/23/2015 - 21:04 | 5920207 silverer
silverer's picture

They would have been, had they backed their currency with gold and stayed away from Europe central banks.

Mon, 03/23/2015 - 20:43 | 5920133 nmewn
nmewn's picture

Heer da beer da bunds hav bein massacred ma dear.

Who taught these guys how to invest, Anders Breivik? ;-)

Mon, 03/23/2015 - 22:47 | 5920441 GoinFawr
GoinFawr's picture

You have such a great memory,

(link to an inconvenient, contrary chart)

 

too bad it's so damn SHORT!

lol

:)

etc.

 

 

 

Tue, 03/24/2015 - 05:46 | 5920935 nmewn
nmewn's picture

;-)

Fri, 03/27/2015 - 15:19 | 5934897 GoinFawr
GoinFawr's picture

Oh I get it now,you brought up Breivik because the Norwegians are making a killing

Mon, 03/23/2015 - 22:30 | 5920452 tony wilson and...
tony wilson and saturn zion devils's picture

rabbi nmewn

 

brevik was a mossad mi6 protection racket scam.

visual and physical so the yahudi could get hold of oil monies via city of london ohhh

it's gone bad investments.

Tue, 03/24/2015 - 05:52 | 5920936 nmewn
nmewn's picture

Yes, of course, Brevik was Mossad.

Because bombing buildings, murdering kids & adults, being caught and telling everyone why you did it and why you would do it again is obviously false and part of the plot...lol.

Mon, 03/23/2015 - 20:46 | 5920142 MontgomeryScott
MontgomeryScott's picture

Dear Mr. Kallevig,

I have notied that you are looking to invest in foreign real estate markets.

My city is at the bottom of the pricing market, and we have nowhere to go but up! Our infrastructure is second to none, and opportunities to buy entire city blocks in the re-emerging city center and manufacturing districts probably won't last long. Act fast, though, because the Chinese are already grabbing the better parts.

Thank you for your time.

Mike Duggan

Mayor,

Detroit, Michigan

(Tell them Kwame Kilpatrick sent you)

 

Tue, 03/24/2015 - 00:10 | 5920656 Bunga Bunga
Bunga Bunga's picture

Bullish.

Mon, 03/23/2015 - 20:50 | 5920158 Berspankme
Berspankme's picture

Good thing there is no bubble in real estate prices. 

 

Blackstone pays $1.3B for former Sears Tower in Chicago. Previous sale was $800M

Mon, 03/23/2015 - 21:17 | 5920261 Bay of Pigs
Mon, 03/23/2015 - 21:26 | 5920290 rlouis
rlouis's picture

Incredible prices in Ft. McMurry! 

 

http://www.fortmcmurrayrealestate.com/idx/

 

Mon, 03/23/2015 - 21:36 | 5920317 Bay of Pigs
Bay of Pigs's picture

Yes, incredibly HIGH that is. AVERAGE home price in Ft McMurray down 5.5% to only $746K. LOL...

Even worst in Calgary, Toronto, Vancouver, Victoria...

Tue, 03/24/2015 - 00:12 | 5920664 Miffed Microbio...
Miffed Microbiologist's picture

Absolutely insane. When the Chinese stop dropping 700k+ cash for an average tract home here in San Diego, things may get interesting.

Miffed;-)

Mon, 03/23/2015 - 20:50 | 5920159 mastersnark
mastersnark's picture

Asian real estate implosion in 4, 3, 2,....

Mon, 03/23/2015 - 20:51 | 5920163 i_call_you_my_base
i_call_you_my_base's picture

Low rates create housing bubbles. So, low rates worldwide means?

Mon, 03/23/2015 - 20:58 | 5920182 booboo
booboo's picture

Uf da

Mon, 03/23/2015 - 21:01 | 5920196 silverer
silverer's picture

Property in Japan?  Now that's like buying a boat that's about to sink, isn't it?

Mon, 03/23/2015 - 21:13 | 5920253 nmewn
nmewn's picture

They're gonna build a wall around it, make it like a stretched out New Orleans or sumpin.

It'll be fine ;-)

Mon, 03/23/2015 - 22:34 | 5920456 tony wilson and...
tony wilson and saturn zion devils's picture

so rabbi

tell us about mossad aman magna bsp and fuckishima

come on kleinfelt dish the talmudick dirt?

Tue, 03/24/2015 - 05:46 | 5920931 nmewn
nmewn's picture

Well...good morning Tony!

I see your fixation with dicks is as strong as ever, how long after the operation did it take you to miss yours? From what I understand its like losing an arm or a leg, the brain still thinks its there.

Good luck with all that and don't forget to sit when you pee ;-)

Mon, 03/23/2015 - 21:36 | 5920315 Stormtrooper
Stormtrooper's picture

$900 billion divided by 5 million population= $180,000/person divided by $1200/oz gold= 150 oz gold per Norwegian= survival of the global meltdown.  Instead, empty office space.  Humans have no future.

Mon, 03/23/2015 - 22:52 | 5920450 GoinFawr
GoinFawr's picture

location location location; doesn't Japan have some land that yet glows bright, even in the dark?... I suppose that's almost  anywhere though,

Mon, 03/23/2015 - 21:26 | 5920287 post turtle saver
post turtle saver's picture

... and the quest for yield continues

Mon, 03/23/2015 - 21:46 | 5920338 RaceToTheBottom
RaceToTheBottom's picture

Norveegans should have bought Detroit.  Americanishe would love them to buy more than the chinskies

Mon, 03/23/2015 - 21:52 | 5920356 f16hoser
f16hoser's picture

If not, the British secret service will shoot-up another island full of politicians kids on a weekend retreat. No wait, they did that one already. Guess Norway hasn't forgotten...

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