Norway’s housing market stronger
Lalaine C. Delmendo | April 10, 2021
After a brief slowdown in early-2018, Norway’s house price growth is accelerating again. Falling interest rates and limited housing supply are working their magic.
The nationwide house price index rose by 7.11% during 2020, the biggest y-o-y increase since Q2 2017, according to Statistics Norway. When adjusted for inflation, Norwegian house prices rose 5.75% y-o-y in 2020. During the last quarter house prices rose just 0.32% (0.27% inflation-adjusted).
- In Bergen, the house price index rose by 7.42% (6.06% inflation-adjusted) during 2020 – an improvement from the previous year’s 4.16% growth and its best performance in six years. On a quarterly basis, house prices rose slightly by 0.36% (0.3% inflation-adjusted) during the latest quarter.
- In Oslo including Bærum, the house price index rose by 7.83% during 2020 (6.46% inflation-adjusted), following a 4.58% y-o-y increase in 2019. During the latest quarter, house prices increased 3.08% (3.02% inflation-adjusted).
- In Stavanger, house prices rose by almost 10% y-o-y (8.57% inflation-adjusted) last year, in sharp contrast to a 3.22% decline in 2019. Quarter-on-quarter, house prices fell by 0.77% in Q4 2020 (-0.83% inflation-adjusted).
- In Trondheim, house prices rose by 6.43% y-o-y (5.07% inflation-adjusted), up from the prior year’s miniscule rise of 0.1%. During the latest quarter, house prices were up by 1.55% in Q4 2020 (1.49% inflation-adjusted).
Of the country’s regions, Vestfold and Telemark and Viken excluding Akershus had the highest annual price increase at 10.11% during 2020 (8.71% inflation-adjusted), followed by Trøndelag excluding Trondheim (8.77%), and Akershus excluding Bærum (7.78.%). More modest house price increases were recorded in Agder and Rogaland excluding Stavanger (5.22%), Innlandet (4.54%), Nord-Norge (3.97%), and Møre og Romsdal and Vestland excluding Bergen (3.39%).
Demand is rising again, after a temporary slowdown in Q1 2020 due to pandemic-related restrictions. During 2020, residential property sales in Norway rose by 3.7% to 96,045 units, according to Statistics Norway, though in Oslo sales were down by 2.5% to 12,417 units.
Despite this, construction remains weak. Dwelling starts fell by 5.8% in 2020 while completions fell 4.1%, according to according to Statistics Norway.
Norway’s mainland economy, which excludes the volatile oil and shipping sectors, contracted by 2.5% in 2020, its weakest performance since 1945, due to COVID-19 lockdown measures, according to Statistics Norway - far less severe than most European nations. The eurozone countries’ economies contracted by an average of 6.8% last year.
The Norwegian economy is projected to grow by 3.6% this year, according to the IMF.
Anyone can own, occupy, and invest in real estate in Norway.
Norway’s long house price boom
Prices of existing detached houses in Oslo rose by 193% between 2002 and 2020 (105% inflation-adjusted), to NOK 60,603 (US$ 7,023) per square metres (sq. m).
In Norway as a whole, existing detached house prices rose 135% over the same period. An existing detached house in Norway costs an average NOK 26,449 (US$3,065) per sq. m in 2020, up 3% from a year earlier, according to Statistics Norway.
During eight periods since 1990, house prices in Norway have risen by more than 10% annually, at least in nominal terms:
- Q1 1994 - Q4 1994: average y-o-y growth of 13.3% (11.8% in real terms)
- Q4 1996 - Q3 1998: 12% (9.4% real)
- Q3 1999 - Q3 2000: 16.8% (13.6% real)
- Q2 2004 - Q4 2004: 10.4% (9.2% real)
- Q1 2006 - Q3 2007: 14% (12.3% real)
- Q4 2009 - Q1 2010: 11.2% (8.8% real)
- Q1 2010 - Q2 2013: 25.9% (20.4% real)
- Q4 2013 – Q4 2020: 37.8% (18% real)
Causes of these strong house price increases:
- strong economic growth
- low interest rates
Annual price falls were observed only in four periods:
- Q1 1993 - Q2 1993: -3.2% (-5.6% in inflation adjusted-terms)
- Q2 2003: -1.1% (-3.2% real)
- Q3 2008 - Q2 2009: -4% (-7.2% real)
- Q1 2018: -1.1% (-5.3% real)
Demand is rising again
After a temporary slowdown in Q1 2020 due to pandemic-related restrictions, demand is now rising again. By property type:
- Detached houses: sales rose by 6.5% y-o-y to 36,516 units in 2020
- Houses with 2 dwelling units: sales rose by 6.2% y-o-y to 8,801 units last year
- Multi-dwellings: sales increased 4.1% y-o-y to 39,244 units last year
- Row houses: sales fell by 3.9% y-o-y to 6,864 units in 2020
Key rate at record low, mortgage interest rates falling rapidly
Norges Bank, the country’s central bank, kept its key rate at 0% in March 2021, after cutting rates four times last year. As a result housing loan rates are falling sharply.
“When there are clear signs that economic conditions are normalising, it will again be appropriate to raise the policy rate gradually from today’s level,” says Governor Øystein Olsen.
In February 2021, the average interest rate for new housing loans fell to 1.77%, sharply down from 3.03% in February 2020, according to Statistics Norway.
Over the same period:
- Floating interest rate housing loans (Up to 3 months) are: 1.76%, down from 3.03% a year earlier
- Fixed interest rate housing loans (More than 3 months) are: 2.05%, down from 2.94% a year earlier
- Fixed interest rate housing loans (1-3 years) are: 1.82%, down from 2.91% a year ago
- Fixed interest rate housing loans (3-5 years) are: 1.97%, down from 2.95% in February 2020
- Fixed interest rate housing loans (Over 5 years) are: 2.31%, down from 2.97% a year earlier
Mortgage loan restrictions extended
These low interest rates require the Ministry of Finance to keep a tight watch on lending. Norway has the third-highest level of debt-to-income among OECD nations at more than 231%, behind only Denmark and the Netherlands - almost double its level in 1995. “The high debt of Norwegian households still pose significant risk to the economy and to jobs,” said the Finance Ministry.
To curb rapidly rising house prices the government introduced tough new residential mortgage loans requirements, which were recently extended until December 31, 2024. That’s why Norway’s mortgage market shrunk to about 62% of GDP last year, down from 84% of GDP in 2016. The rules include:
- A borrowing cap less than five times borrower’s gross income;
- Mortgages to last a shorter time;
- In Oslo, an equity requirement of at least 40% for secondary home buyers, as opposed to the 15% equity for first-time buyers;
- Lenders should make allowance for an interest rate increase of 5 percentage points when assessing a borrower’s debt-servicing ability.
DNB, Nordea and Danske Bank are among the country’s top mortgage lenders.
Bubble territory? Maybe in Oslo, where rent rises lag house price increases.
Is Norway experiencing a housing bubble? Normally there is a clear pattern to housing bubbles, with house price rises greatly outpacing rent rises during the boom. In Norway, however, while the house price index (HPI) rose by about 39.2% from 2012 to 2020, the average monthly rent rose between 38.1% for one-bedroom dwellings and 50.5% for dwellings with five or more bedrooms, based on the figures from Statistics Norway.
However in Oslo and its neighbouring municipality Bærum, house prices are outpacing rents. Oslo’s HPI rose strongly by 62.3% from 2012 to 2020, while average monthly rents rose by around 38 to 44% over the same period.
There are two main reasons why house prices are outpacing rental rises in Oslo:
 According to Morgen Granhaug of M3 Rental, many investors have purchased apartments to rent out, which keeps rent prices down.
 Owning a house is relatively cheaper than renting a property, argues Nordea’s chief economist Kjetil Olsen and chief analyst Erik Bruce, partly due to the strong tax support for owning. He argues that it still makes sense to purchase a 30 square metres residence for NOK 3 million (US$ 347,632), rather than renting the same place.
Yields are low, rents rising modestly
Rental yields for residential properties in Oslo are quite low, ranging from 3.1% to 4.6%, according to a research conducted by the Global Property Guide. As one expects, smaller properties offer higher yields as compared to larger properties.
In 2020, the average monthly rent for two-bedroom dwellings rose by 2.9% y-o-y to NOK 9,320 (US$1,080) while rents for three-bedroom dwellings increased 4.3% y-o-y to NOK 11,030 (US$ 1,278), according to Statistics Norway.
- Two-room Oslo (including Bærum) dwellings had an average monthly rent of NOK 12,080 (US$1,400) in 2020, while three rooms cost NOK 14,810 (US$1,716) monthly.
- In the municipality of Trondheim, two and three-room dwellings rent for NOK 9,560 (US$1,108) and NOK 11,560 (US$1,340), respectively.
- In Bergen, two and three-room dwellings rent for NOK 9,150 (US$1,060) and NOK 11,310 (US$1,311) per month, respectively.
- In Stavanger, rents averaged NOK 8,740 (US$1,013) per month for two-room dwellings and NOK 10,780 (US$1,249) per month for three-room dwellings.
- In Akershus county (except Bærum), two-room dwellings had an average monthly rent of NOK 9,510 (US$1,102) while three rooms cost NOK 11,250 (US$1,304) per month.
Owner occupancy is strongly subsidized by the state
State policy has had a strong impact on housing preferences in Norway:
- Preferential interest rates are offered to households through the State Housing Bank.
- Buyers can purchase municipal land at subsidized prices.
- Owner-occupiers get tax relief on mortgage interest payments.
- Owner-occupied housing is taxed at a lower effective rate than rental housing.
- Owner-occupied dwellings are capital gains tax exempt.
The long-term impact of all these measures has been a massive shift in the structure of Norway’s housing market. In 1920, 47% of Norway’s households were renters. But by early-2020 only 17.9% rented, while around 70.6% were freeholders and 11.5% shareholders.
Oslo has the lowest portion of homeowners at about 42.4%, while 25.9% of households in Oslo rent, with shareholders 31.6% of total households.
At the same time, there is a consensus that the free market does not provide sufficient housing for the poor. Social rental housing made up around 15% of total rental stock in Norway.
Norway has problems of under-supply
The IMF has recommended that the country should relax constraints on new property construction to rein in rapid house price rises. But residential construction activity in Norway remains weak, exacerbated by the COVID-19 pandemic.
- Dwelling starts fell by 5.8% y-o-y to 29,931 units in 2020, following a minuscule 0.8% increase in 2019, according to Statistics Norway.
- Dwelling completions were down 4.1% y-o-y to 29,164 units in 2020, following a 7.4% decline last year.
- Dwellings under construction fell by 1% y-o-y to 47,534 in 2020, after a meager growth of 0.5% in 2019.
Even before the pandemic, the increase in dwelling starts and completions in Norway was modest in comparison to countries such as Ireland or Spain, despite the house price boom. Dwelling starts averaged 31,000 during the boom years from 2004 to 2007, then fell to 21,000 units annually from 2008 to 2010.
They then rose again to an annual 33,000 units from 2016 to 2020. Completions followed a similar pattern.
There were 2,610,040 dwellings in Norway in 2020, up by 1.1% from a year earlier. Almost half were detached houses.
Norway’s mainland economy contracted by 2.5% in 2020 (excluding oil and shipping), due to COVID-19 lockdown measures, according to Statistics Norway - its weakest performance since 1945. However, the slowdown was less severe than most eurozone countries, whose economies shrank by an average of 6.8%.
The Norwegian economy is projected to grow by 3.6% this year, based on IMF forecasts.
Norway’s petroleum industry is improving, with Brent crude spot up almost 12% on the year in February, at US$62.28 per barrel. That’s below the average US$107.64 per barrel from 2011 to 2014, but in April oil had reached a 21-year low of just US$18.38 per barrel!
The petroleum industry is the country’s largest industry, accounting for more than 20% of GDP, and around 47% of exports by value.
In the past seven years, the Norwegian Krone (NOK) has depreciated by about 33.4% against the euro, from NOK 7.5479 = EUR 1 in April 2013 to NOK 11.3369 = EUR 1 in April 2020. The krone lost 44.5% of its value against the US dollar over the same period, from NOK 5.7951 = USD 1 to NOK 10.4335 = USD 1 in April 2020.
The krone has been appreciating since, gaining 10.2% against the euro to NOK 10.2897 = EUR 1 in February 2021 and by 22.6% against the US dollar to NOK 8.5092 = USD 1.
Seasonally-adjusted unemployment was 5% in Q4 2020, down from 5.3% in the previous quarter but still sharply up from 3.9% a year earlier, according to Statistics Norway.
Inflation was 3.3% in February 2021, the highest level since December 2018. Inflation averaged 2% from 2010 to 2020.
- Prices per square metre of detached houses (Statistics Norway): https://www.ssb.no/en/priser-og-prisindekser/statistikker/kvadenebol
- Price index for existing dwellings (Statistics Norway): https://www.ssb.no/en/priser-og-prisindekser/statistikker/bpi
- Transfer of properties (Statistics Norway): https://www.ssb.no/en/bygg-bolig-og-eiendom/statistikker/eiendomsoms
- Oslo´s rental yields are low(ish) - max of 4.6% (Global Property Guide): https://www.globalpropertyguide.com/Europe/Norway/Rental-Yields
- Rental market survey (Statistics Norway): https://www.ssb.no/en/priser-og-prisindekser/statistikker/lmu
- World Economic Outlook Database, October 2020 (International Monetary Fund): https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-subjects?c=142,
- Norway at a Glance (International Monetary Fund): https://www.imf.org/en/Countries/NOR
- Norway´s economy weakest in 75 years in 2020, but Q4 shines (Reuters): https://www.reuters.com/article/norway-economy-gdp-idUSL8N2KH7CB
- Labour force survey, seasonally-adjusted figures (Statistics Norway): https://www.ssb.no/en/statbank/table/08931/tableViewLayout1/
- Policy rate unchanged at zero percent (Norges Bank): https://www.norges-bank.no/en/topics/Monetary-policy/Monetary-policy-meetings/2021/march-2021/
- Interest rates in banks and mortgage companies (Statistics Norway): https://www.ssb.no/en/bank-og-finansmarked/statistikker/renter
- New lending regulation (Government.no): https://www.regjeringen.no/en/aktuelt/new-lending-regulation/id2790822/
- Hypostat 2020: A review of Europe’s mortgage and housing markets (European Mortgage Federation): https://hypo.org/app/uploads/sites/2/2020/12/HYPOSTAT-2020-FINAL.pdf
- Building statistics (Statistics Norway): https://www.ssb.no/en/bygg-bolig-og-eiendom/statistikker/byggeareal
- Dwellings (Statistics Norway): https://www.ssb.no/en/bygg-bolig-og-eiendom/statistikker/boligstat
- What's going on? Oslo's dramatic 21.6% house price surge - March 28, 2017
- Norway’s housing market slowing - January 05, 2014