Dispelling The Norwegian Housing Myth

Submitted by Alexander Grover in Oslo, Norway

Recently, Dagens Næringsliv published an article where an economist from DnB (Norway’s largest bank) stated that Norway is not in a housing bubble although conditions resemble one and prices can still fall.  The article bases the current prices on the following assumptions:

  • High population growth
  • High development in household incomes and expectations
  • Good conditions on the labor market
  • Low-interest rates and high credit supply

The article continues, differentiating the Norwegian housing market from the American one, basically stating that a socialist country with lots of benefits can handle higher debt levels than a capitalist one. It fails to acknowledge the impact of the eroding oil foundation on the long term economy.

My previous article discusses and questions the above in detail. To further emphasize that housing’s best days are behind us, let’s take a look at prices in dollar and commodity terms:  

Oslo Apartment Prices in Dollar Terms

Regarding universal currency, this bubble already popped in 2013, now trying to stage a recovery. However, the long-term USDNOK rate will depend on oil prices, trade balances and interest rates.

Housing Prices in Gold Terms          

Gold is considered both the universal commodity and currency since it does not perish, easy to assay and disconnected from the Central bank’s hysterics.  In gold terms, the bubble burst back in 2007.

Real Interest Rates

As long as real rates are negative (and becoming more so), the economy is out of balance (since mid-2012), eroding the currency value and creating asset bubbles.  When people stop losing from saving at a bank and Norway finds an alternative to the oil industry, the economy can be considered stable.  Since my last article, the gap between inflation and benchmark rates have widened (from ca. -3.3 to -3.9), putting more pressure on the NOK and bringing us closer to a day of reckoning: uncontrollable inflation or an asset price correction via sudden and decisive rate hikes. 

Source: Norges Bank and SSB

Conclusion        

Nevertheless, even though recent inflation figures make Norway reluctant to cut rates, they may do so, maintaining the illusion. House prices may increase in NOK terms, but they won’t buy much when sellers realize a profit. Remember, there are other investments than housing: dividend yielding stocks in companies with high equity ratios, precious metals, education and your own business.