Predict housing price increase after rate cut – Dagsavisen

 
 

By Nina Johnsrud and Sofie Vicarage

 
 

Norges Bank lowers key rate to 0.5 percent, and speaks for first time about the possibility of interest rates below zero. Hold the cheers, is still modest from the experts.

 
 

– The reduction of the policy rate will get more people wanting to buy housing, and can lead to a price increase of housing between 20 and 30 percent. But it is unlikely to have significant impact on interest rates banks offer consumers – you and me, says Anders Langtind, partner in PRIVATmegleren and chairman of Oslo and Akershus Real Estate Association

 
 

He notes that some banks already offer rates down to 1.99 percent.

 
 

– Banks operates an extreme fight for mortgage customers, but even they can not go big lower than 1.6 – 1.7 per cent if they are still going to make money. Also banks must borrow money.

 
 

He points out that although the policy rate in Sweden now are negative, continuing rise in house prices.

 
 

Arne Strand comments: Now it costs nothing to borrow money. There is a momentary pleasure.

 
 

– Historically low

 
 

Professor Jan Tore Klovland at NHH supports Langtind in that it is not automatic that the interest rate on housing loans are so much lower.

 
 

– There is no mechanical connection here. Norges Bank’s key rate only affects short-term money market rates. Banks borrow ourselves into more long-term and here there are many other factors at play than the policy rate, says Klovland.

 
 

He believes the newspapers exaggerate what this has to say to the consumer.

 
 

– It is not certain it has the great effect. But for all who follow the monetary policy is of course interesting:

 
 

– This is the lowest rate is in history. Even during periods of price decline has not rate has been lower than this, says Klovland.

 
 

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– Interest Slope for Enterprise

 
 

Chief Economist Elisabeth Holvik SpareBank1 explains that putting a negative rate is as imposing banks a fee.

 
 

– Today is it that banks can borrow from the central bank, and placing excess liquidity with the central bank. It’s a safe place to put money. But when they are imposed negative interest rates is like putting a tax on placing surplus liquidity with the central bank, said Holvik.

 
 

The purpose of the central bank to do that is to push banks to either do something that has a slightly higher risk, namely using its profits to lend to businesses, so that they can initiate investment and generate economic activity.

 
 

– But what we’ve seen is that banks rather puts profits in Treasuries.

 
 

Since government bonds are issued and guaranteed by the state, this form of bonds low risk.

 
 

– In addition, banks have been required to increase capital adequacy until summer. The easiest way for the bank to do it is to lend less money. Those companies that need to borrow money could therefore find that the interest rate rises, says Holvik.

 
 

The flaw is that they had no current regulation of the financial sector in the good times until 2008.

 
 

– This is quite parallel to what happened in the 80s and 90s. There was no interest in predicament again when it went well. Renta was put in Parliament, and it was set low despite the credit market was deregulated and it poured capital into the economy. When the downturn in the 90s arrived we were given high interest rates to ensure fixed exchange rate against Europe. On top, there was a long-awaited tax reform, which removed some of the then strong incentive for residential investment, which reinforced the downturn.