Fresh figures from Eiendom Norge show that Norwegian home prices declined by 1.9 percent in September 2023. This makes this year's September the second weakest September in the history of housing price statistics. Experts expressed surprise at the relatively modest decline, particularly in the wake of multiple interest rate hikes by the Norwegian Central Bank. They anticipate that this subdued trend will persist into the autumn.
Autumn typically sees a period of stagnating or falling house prices, and this year's autumn appears to follow that pattern. According to the price statistics, home prices dropped by 0.2 percent in September, adjusted for seasonal variations.
- Even though the seasonal adjustment shows a moderate decline of 0.2 percent, this is still the second weakest September in the history of housing price statistics. It is only in 2022 that we have had a weaker development in September," says Henning Lauridsen, CEO of Eiendom Norge.
From the beginning of the year until May, Norwegian home prices rose monthly and increased by as much as 7.7 percent, leading to the highest home prices ever recorded. Following the summer price drop, weak seasonally adjusted development in August, and the start of an autumn correction in September, the increase in home prices has stabilized. After the September figures, home prices have increased by 3.7 percent so far in 2023. At the end of September, the average cost for a home in Norway was 4.6 million Norwegian kroner.
Despite the weak trend in home prices, there is still robust activity in the second-hand housing market:
- In September, 9,091 homes were sold in Norway, 7.2 percent fewer than in September 2022.
- So far this year, 73,269 homes have been sold in Norway, 0.3 percent more than in the same period in 2022.
- In September, 11,158 homes were listed for sale in Norway, 4.8 percent fewer than in the same period in 2022.
- So far this year, 84,927 homes have been listed for sale in Norway, 4 percent more than in the same month in 2022.
According to the head of Eiendom Norge, activity in the second-hand housing market remains stable despite changes in price development over the past two months. He also notes that the number of homes available for sale has increased significantly since before the summer. However, this increase in supply is now starting to wane.
While the supply side has strengthened recently, the demand side appears to have weakened. Over the last two months, fewer homes were sold compared to the same period last year. In both August and September, there was a historically high proportion of unsold homes in the second-hand housing market. With a total of 18,994 unsold units, a "housing surplus" has emerged, indicating that the housing market is in a cooling phase. SR Bank's chief economist, Kyrre Knudsen, suggests that this development is logical and natural after 13 interest rate hikes in two years.
Additionally, the figures from Eiendom Norge also reveal significant regional differences in housing price developments in September:
- Stavanger and its surroundings had the strongest seasonally adjusted price development in September, where prices rose by 0.6 percent. Bergen and Kristiansand also saw significant price increases with seasonally adjusted growth of 0.4 percent.
- Bodø and its surroundings had the weakest seasonally adjusted price development, with a seasonally adjusted decrease of 1.6 percent.
- In Oslo, Trondheim, and Tromsø, house prices also decreased by 0.1 percent, 0.7 percent, and 1 percent, respectively, when adjusted for seasonal variations.
Substantial regional differences are also evident in housing price developments since the beginning of the year:
- Kristiansand and Stavanger and its surrounding areas have experienced the most robust growth in 2023, with increases of 10 percent and 9.6 percent, respectively. Tromsø, on the other hand, has the weakest development so far this year with 0 percent.
- In Oslo and Bergen, house prices have risen by 3.7 and 3.4 percent so far this year. Trondheim has somewhat weaker development so far this year, with an increase of 1.7 percent.
On average, it took 40 days to sell a home in September, up from 38 days in August. The shortest selling times were recorded in Oslo and Kristiansand at 26 days, while the longest was observed in Hamar with Stange, at 64 days.
The drop in home prices in September surprised several economists who had expected a slightly greater decline.
Sara Midtgaard, senior economist at Handelsbanken, noted that the price drop was mild and less than expected, especially considering the record-high number of unsold homes the previous month. She speculated that the statistics may partly reflect that some of the unsold homes are being withdrawn from the market, and therefore, are not being included in the statistics. Those that are sold more easily tend to be in lower price ranges, retain their value better, and also constitute a larger share of the statistics than they otherwise would.
Similarly, Swedbank's chief economist, Kjetil Martinsen, argued that the statistics were a positive surprise and that we had a milder start to the autumn correction than expected. He pointed out that the interest rate hikes from the summer had not yet affected the housing market in September. Additionally, the Norwegian Central Bank raised interest rates further in September and plans another rate hike in December.
- Given inflation and the very divergent economic developments across different sectors in Norway, Norges Bank cannot afford to lower interest rates in the near term. In this light, the housing price figures were positive. They show that there is still fairly good activity in the existing home market, with a slowdown rather than a complete halt, said Martinsen.
In the coming months, Eiendom Norge's CEO anticipates that the weak price trend will continue.
- We expect weak price development in the coming months, and given the many interest rate hikes, it's surprising that we haven't seen weaker housing price development until now. As it stands at the moment, nominal housing price development in 2023 is likely to end up around zero, said Lauridsen of Eiendom Norge.
Meanwhile, senior economist Midtgaard at Handelsbanken and country manager Randi Marjamaa at Nordea predict that the decline in home prices could intensify during the autumn. Midtgaard argues that the mild decline could create a greater risk of further declines in the autumn, while Marjamaa contends that the interest rate hikes had already begun to affect the housing market negatively and would lead to additional price drops in a cooler housing market. Marjamaa thus predicts that the decline in home prices will intensify beyond the autumn.
Along the same lines, SR Bank's chief economist, Kyrre Knudsen, suggests that the interest rate increases are taking their toll, and the market is cooling down. "Isolated, this is an argument for not raising interest rates further in December," he said.
In early September, Norges Bank conducted its fifth interest rate hike in 2023, bringing the policy rate to 4.25 percent, the highest level since the financial crisis in 2008. Furthermore, Norges Bank announced another interest rate hike in December.
Henning Lauridsen of Eiendom Norge calls on Norges Bank to slow down and notes that Norges Bank has already laid the groundwork for potential financial instability and a recession by pushing new home construction to its lowest levels since the banking crisis.
- Norges Bank has now crushed the new home market with the interest rate hikes, setting the stage for the biggest rebound in the second-hand housing market when interest rates must be lowered towards the end of 2024 due to weak developments in the Norwegian economy and high unemployment, said Lauridsen.
Carl O. Geving, CEO of the Norwegian Association of Real Estate Agents, also believes that monetary policy has brought about a halt in the new housing market. He points out that Norges Bank's tightening of interest rates will lead to both short-term challenges and long-term problems in the existing home market.
- When the central bank is eventually forced to lower the interest rate path, it will trigger a strong rebound in the housing market due to higher demand and lower housing supply than we've seen in many years, Geving said.
Marius Gonsholt Hov, chief economist at Handelsbanken, does not believe that the statistics from Eiendom Norge will lead Norges Bank to reconsider its plan for another interest rate hike in December. Adjusted for seasonal variations, home prices in September dropped only half as much as the central bank had expected in advance. Additionally, housing price figures will not play a decisive role in Norges Bank's future decisions.
- The primary consideration will be signs that price and capacity pressures are easing more quickly than they anticipated, which could prevent the hike they have announced for December, said Hov.
Sources: Eiendom Norge, DN, E24(1), E24(2)
