Sharp house price warning from the FSA – Aftenbladet.no

In its report “Risk Outlook 2015″ writes audit that weaker outlook and increased uncertainty for the Norwegian economy in isolation will curb household borrowing bright. Then comes the warning:

– There is however a danger that the prospect of a prolonged low interest rates and easy access to credit may contribute to the strong growth in debt and house prices still persist, says Financial Supervisory Director Morten Baltzersen.

– It will increase household indebtedness further and help to sustain the demand for goods and services up in a time, but such a development is not sustainable. The risk of a subsequent sharp downturn and financial instability, will then increase, he said.

Also Association of Real Estate (NEF) believes sustained rise in house prices will not be sustainable in the long term.

– It will reinforce the disparity between household debt and income and build vertical drop that increases the risk of a hard landing in the housing market, says CEO Carl O. Greving.

Powered by demand

The overall picture in Norway is that house prices continue to rise in a galloping pace, despite economic uncertainty.

– Developments in the housing and credit markets have increased the risk of financial instability, Baltzersen.

He stressed that in such a situation is important that banks provide to build up capital, so that they are equipped to deal with any sudden downturn.

Oil prices the past six months settled at a far lower level than last summer. It coincides with an announced reduction in the rate of investment on the Norwegian shelf. Analysts believe therefore in a weaker trend in the Norwegian economy, but a relatively soft landing.

But low interest rates also forces Norwegian rates down. Thus it becomes cheap to borrow. In sum contributes low interest rates, low property taxes, low unemployment, high real wage growth and migration to central areas to a demand-driven rise in house prices.

“Problem”

FSA draws up a “growth scenario” and a «stagnation scenario.”

In the first analysis assumed Norway GDP to grow by “in excess of 2 percent per year,” the price of oil to rise, interest rates remain low and unemployment relate low. In this scenario, expected house prices continued to rise and thus the debt burden to increase.

Otherwise, growth is low, unemployment rising, oil prices falling and international interest rates increased by 3 percentage points. It will reduce credit growth and lower housing prices, but still high debt burden.

The result will be a “strong increase in problem loans,” fear FSA.

To prevent this, the agency proposed in March a regulation that will make it harder to get loans. Also NEF believes that it must take steps to slow credit growth, through a temporary tightening of bank lending practices.

The government has repeatedly warned house prices.

– Norwegians have high debt, and it is still increasing. Most have a lot going on in his private finances. But many also have major problems if things change, said Finance Minister Siv Jensen (FRP) Aftenposten Tuesday. (© NTB)