The accessibility of the housing market to individuals with ordinary incomes has declined, as highlighted by the nurse index for the first half of 2023. Simultaneously, the first quarter of 2023 marked the lowest number of first-time homebuyers. As housing prices rise and mortgage interest rates climb, Norges Bank's latest interest rate increase in August may add new complexities to the journey toward homeownership for ordinary people. Amidst these evolving market conditions, our rent-to-own model emerges as a promising pathway that paves the way for aspiring homeowners to achieve their dreams.
Biannually, Eiendom Norge and Eiendomsverdi publish the nurse index—a statistic measuring the proportion of properties sold that a single nurse with an average yearly income can afford to purchase. The nursing profession is the benchmark because their income represents a typical decent Norwegian income and is relatively insulated from economic fluctuations. When a nurse can acquire a significant portion of properties in a city, it indicates low housing prices in this city.
Anders Francke Lund, Analysis and Model Manager at Eiendomsverdi AS, highlights a diminishing affordability trend for nurses across all Norwegian cities.
- It has become even more challenging for regular wage earners in Norway to become homeowners in 2023”, states Lund.
Over the past decade, access to homeownership for those with ordinary incomes in Oslo has undergone a profound transformation. In 2023, 1.3 percent of properties in Oslo are within reach for nurses, a significant drop from 12.7 percent in 2013. To secure financing for a suitable home in Oslo this year, you should have an annual salary of NOK 780,000. The nurse index remains low across all districts in Oslo. Only the Grorud district stands out, with nurses affording 8 out of 100 properties.
In Trondheim and Bergen, approximately 27 percent of properties are accessible to nurses in Bergen and Trondheim in 2023. This figure was 17.2 percent in Tromsø. Meanwhile, in the Stavanger area, access to owned housing over the past decade presents a contrasting trend compared to that in Oslo. The index demonstrates that in 2013, nurses could afford nearly 2 out of every 100 properties. This ratio has surged remarkably to 25 out of 100 properties in 2023. However, the Stavanger index saw a decline from 32.4 percent in 2022.
December 2022 brought a governmental announcement—reducing the stress test in lending regulations from 5 percentage points to 3 percentage points starting in 2023. Henning Lauridsen, Director of Eiendom-Norge, notes that while the reduction in the stress test initially improved purchasing power for those with incomes under 600,000, robust housing price growth in H1 2023 offset this benefit.
- Despite this, we believe the reduced stress test was a wise move, because the alternative would have been worse - a significant fall in house prices," Lauridsen says.
Amidst the intricate dynamics of the housing market, Lauridsen underscores the pressing need to reconsider lending regulations. He emphasizes that with rising interest rates, these regulations compel vulnerable households to exhaust their financial reserves for home purchases. Furthermore, the lending regulations obscure the fundamental issue within the housing market – the low number of commenced new properties, as noted by Lauridsen. Adding to the changing landscape, a new financial agreements act came into effect in 2023, imposing stricter lending criteria on banks and fostering sound credit management practices.
- We expect Finance Minister Trygve Magnus Slagsvold Vedum to now recommend the lending regulations to the scrap heap of history, Lauridsen says.
On Thursday, August 17th, Norges Bank announced a quarter-point hike in the policy rate, lifting it to 4 percent. This adjustment is in response to the latest inflation data released by Statistics Norway, revealing a 5.4 percent annual price growth in July 2023. The move reflects Norges Bank's strategy to align inflation more closely with the 2 percent target.
- Economic vitality persists within the Norwegian economy, coupled with a tightly-knit job market. Concurrently, the interest rate's impact is constricting, while economic pressures are gradually receding. Although the pace of consumer price growth has somewhat moderated, it remains considerably elevated, Norges Bank explains their decision to raise the policy rate.
The trajectory of the policy rate will hinge upon the forthcoming economic landscape. In line with Norges Bank's assessment of prospects and risk dynamics, the institution envisions another rate hike in September. Back in June, Norges Bank surprised with a double interest rate hike and signaled a pinnacle rate of 4.25 percent during the autumn. However, the bank issues a cautionary note that further rate hikes are possible.
- If the Norwegian krone becomes weaker than previously estimated or economic pressure persists, there might be a need for a higher rate than indicated in June to bring inflation down. If we witness a more significant slowdown in the Norwegian economy or inflation subsides more rapidly, the rate could be lower than anticipated in June", clarifies Norges Bank in the press release.
This adjustment marks the twelfth increment since the policy rate was raised from zero percent in September 2021. The rate now stands at its loftiest point since the 2008 financial crisis, reaching a pinnacle of 5.75 percent. The substantial ascent of the policy rate over the past couple of years has resulted in heightened rates, a trajectory set to persist. This progression will render the journey toward realizing homeownership aspirations more arduous, especially for first-time buyers.
Since 2008, the Norwegian Association of Real Estate Agents, Ambita, and Socio-economic Analysis have tracked the evolution of first-time homeownership among individuals aged 20 to 39. The statistical findings reveal a notable decline in first-time buyers from the record high of 2021 to 2022, with an approximate 11 percent decrease. So far this year, the weak trend has been persisting:
• In the first quarter of 2023, the volume of first-time buyers reached its lowest point since 2008, both in terms of absolute numbers and as a proportion of total housing transactions.
• The decline persisted into the second quarter, registering 15,185 new first-time buyers. In comparison, this number stood at 15,922 during the second quarter of 2022.
• The initial half of 2023 marks the lowest number of first-time homeowners for the first half-year in Norway since 2017.
The combination of low-interest rates and temporary reliefs of lending regulations following the initial COVID-19 outbreak played a pivotal role in the subsequent surge of first-time buyers, culminating in the peak levels of 2021. However, this phenomenon also drove up house price inflation. The interplay of elevated house prices alongside ascending interest rates has substantially contributed to the sustained decline since 2022.
In Oslo, the decline in first-time buyers has persisted since the third quarter of 2021. During the first half of 2023, approximately 5,000 new first-time buyers were registered in Oslo, marking the city's weakest performance for the first half-year in 15 years.
A decrease in first-time buyers was also observed in Bergen, Trondheim, and Stavanger. Similarly, the municipalities around Oslo have also reported fewer first-time buyers since 2022. Nonetheless, the current level remains relatively high compared to the pre-pandemic years. Notably, Lillestrøm, Nordre Follo, and Rælingen distinguish themselves from other Oslo's neighboring municipalities by maintaining a robust number of first-time buyers throughout 2022 and into 2023.
In response to the challenges of entering the housing market, increasingly more people purchase their first homes in collaboration with others, according to the co-purchase index for first-time buyers, a collaborative effort between Ambita, NEF, and Socio-economic Analysis. The percentage of first-time buyers choosing this approach increased steadily throughout 2022 and has risen to 62 percent nationally during the first half of 2023. In Oslo, this figure stands at 66 percent, which is the highest proportion that has been recorded.
Looking ahead, prospective first-time buyers may find themselves facing extended waiting periods to secure a foothold in the housing market. The subdued trajectory observed in the new housing sector has prompted property seekers to shift towards the secondary market, fostering elevated property prices, as highlighted by analyst Marte Herje Strømme from The Forecast Center. This summer, we have observed a dip in property valuations. Nonetheless, Norges Bank has taken twelve steps to hike the policy rate since the autumn of 2021. The combination of mounting interest rates, augmented monthly outlays, and weakened borrowing opportunities at banks will translate into prolonged waiting times for aspiring homeowners.
Furthermore, Carl O. Geving, CEO of the Norwegian Association of Real Estate Agents, underscores an additional factor that could prolong the wait for first-time buyers: potential limitations on parental support. Statistics compiled by Statistics Norway for 2018 reveal that nearly 35 percent of individuals aged between 20 and 39 received financial assistance from their parents, either as gifts, inheritances, loans, or guarantees. As interest rates continue to ascend and parents grapple with their financial obligations, the likelihood of fewer individuals benefitting from parental assistance in the time to come is plausible.
Amidst this evolving landscape of homeownership, our rent-to-own model emerges as a promising pathway to access the housing market. We are developing this solution to extend the opportunity of realizing one's homeownership aspirations through renting their prospective dwelling. This approach brings the advantage of deferring the mortgage and financing certificate obligations, a particularly valuable stance in a period marked by escalating interest rates.
Furthermore, our innovative offering facilitates an entry point into the housing market without the immediate need to fulfill equity prerequisites. Given the growing challenge of accumulating equity and obtaining assistance to meet this criterion, our model presents an opportunity to cultivate equity within your prospective home. Through our rent-to-own model, we aim to facilitate your entry into the housing market, enabling you to reap the rewards of homeownership at the earliest juncture possible.
Sources: Eiendom Norge, Eiendomsverdi AS, Norges Eiendomsmeglerforbund, Ambita, Samfunnsøkonomisk analyse, DN
