Norway’s housing market shows signs of slowdown

Norway’s housing market is now cooling, amidst rapidly rising interest rates, high inflation, and slowing economic growth.

In Q2 2023, the nationwide house price index fell slightly by 0.14% from the same period last year, in contrast to a y-o-y increase of 6.35% in Q2 2022, based on figures from Statistics Norway. It was its second consecutive quarter of y-o-y decline and its worst showing since Q1 2018. When adjusted for inflation, Norwegian house prices dropped by a bigger 6.25% over the same period.

Though on a quarterly basis, house prices were still up by 3.93% (1.58% inflation-adjusted) in Q2 2023.

During the year to end-Q2 2023:

  • In Oslo including Bærum, the house price index fell by 0.68% (-6.75% inflation-adjusted), in contrast to a y-o-y increase of 5.72% in Q2 2022. During the latest quarter, house prices increased 2.93% (0.6% inflation-adjusted) q-o-q.
  • In Stavanger, house prices rose by a modest 2.44% y-o-y in Q2 2023 (declining by 3.83% in real terms), a slowdown from an annual growth of 6.44% in the previous year. Quarter-on-quarter, house prices were up 6.09% in Q2 2023 (3.69% inflation-adjusted).
  • In Bergen, the house price index dropped 0.23% in Q2 2023 from a year earlier (-6.33% inflation-adjusted), in contrast to a 6.21% y-o-y rise in Q2 2022 and its first decline since Q2 2018. Though on a quarterly basis, house prices increased 2.29% (unchanged in real terms).
  • In Trondheim, house prices fell by 0.86% in Q2 2023 from a year earlier (-6.92% inflation-adjusted),  in stark contrast to a y-o-y increase of 8.72% in Q2 2022. Yet during the latest quarter, house prices were still up by 2.21% (-0.1% inflation-adjusted) q-o-q.

Norway’s house price annual change

Of the country’s regions, Akershus excluding Bærum had the biggest annual house price decline of 1.75% (-7.76% inflation-adjusted) y-o-y in Q2 2023, followed by Vestfold and Telemark and Viken excluding Akershus (-1.46%), Nord-Norge (-0.54%), and Innlandet (-0.07%). Other regions, including Møre og Romsdal and Vestland excluding Bergen, Trøndelag excluding Trondheim, and Agder and Rogaland excluding Stavanger continue to see house price increases, albeit at a much slower pace of just 0.84%, 2.13%, and 3.18%, respectively.

Norway House Price Indices graph

Demand is now falling. During 2022, the total number of residential property transactions in Norway fell by 9.3% to 93,292 units, in contrast to an increase of 7.1% in 2021, according to figures from Statistics Norway. Transactions for all types of properties were down last year. The weakness of the housing market continued this year, with property transactions nationwide falling slightly by 0.2% y-o-y to 18,635 units in Q1 2023.

Anyone can own, occupy, and invest in real estate in Norway.

Residential construction activity continues to fall. During 2022, dwelling starts fell by 0.9% from a year earlier, and completions were down by 1.4% over the same period, according to Statistics Norway. Then in the first seven months of 2023, starts plunged 29.7% y-o-y to 12,371 units, and dwellings under construction fell by 12.7% to 43,001 units. On the other hand, completions rose by 8% to 16,380 units over the same period.

Norway’s mainland economy grew by 3.3% during 2022, following a 3.9% expansion in 2021, as economic activity recovered after pandemic-related disruptions. However, the country’s mainland economy is expected to slow, with a projected real GDP growth rate of just 1.3% this year and 1.6% in 2024, based on government forecasts.

Norway’s long house price boom

Prices of existing detached houses in Oslo rose by a whopping 250% between 2002 and 2022 (124% inflation-adjusted), to NOK 72,307 (US$ 6,756) per square meter (sqm). In Norway as a whole, existing detached house prices rose by 169% (73% inflation-adjusted) over the same period.

An existing detached house in Norway costs an average of NOK 30,328 (US$ 2,834) per sqm in 2022, up 4% 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% in real terms)
  • Q3 1999 - Q3 2000: 16.8% (13.6% in real terms)
  • Q2 2004 - Q4 2004: 10.4% (9.2% in real terms)
  • Q1 2006 - Q3 2007: 14% (12.3% in real terms)
  • Q4 2009 - Q1 2010: 11.2% (8.8% in real terms)
  • Q1 2010 - Q2 2013: 25.9% (20.4% in real terms)
  • Q4 2013 – Q2 2022: 62.6% (29% in real terms)

Causes of these strong house price increases:

  • strong economic growth
  • low-interest rates

Annual price falls were observed only in five brief periods:

  • Q1-Q2 1993: -3.2% y-o-y (-5.6% in inflation adjusted-terms)
  • Q2 2003: -1.1% (-3.2% in real terms)
  • Q3 2008 - Q2 2009: -4% (-7.2% in real terms)
  • Q1 2018: -1.1% (-5.3% in real terms)
  • Q1-Q2 2023: -0.1% (-6.3% in real terms)

Norway HPI by Property Type graph

Property demand weakening

During 2022, the total number of residential property transactions fell by 9.3% to 93,292 units, in contrast to an increase of 7.1% in 2021, according to figures from Statistics Norway.

By property type:

  • Detached houses: transactions dropped 9.1% y-o-y to 33,332 units in 2022, after rising slightly by 0.5% in the prior year
  • Houses with 2 dwelling units: transactions fell by 9.5% y-o-y to 8,307 units last year, following an increase of 4.4% in 2021
  • Multi-dwellings: transactions fell by 9.7% y-o-y to 39,685 units last year, after increasing by 11.9% in 2021
  • Row houses: transactions were down by 5% y-o-y to 7,257 units in 2022, after increasing by 11.3% in 2021
  • Other buildings: transactions dropped 11.6% y-o-y to 4,676 units last year, following an increase of 20.1% in 2021

 In the first quarter of 2023, residential property transactions in Norway fell slightly by 0.2% to 18,635 units as compared to the same period last year.

Norway Residential Property Transactions graph

Mortgage interest rates rising rapidly

Norges Bank, the country’s central bank, raised its key interest rate by another 25 basis points to 4% in August 2023 to fight inflation. It was its twelfth consecutive rate hike in less than two years, raising the borrowing costs to their highest level since 2008.

“A somewhat higher policy rate is needed to bring inflation back to target,” said Norges Bank. Inflation continues to decelerate in recent months but remains far above the central bank’s target.

“The future policy rate path will depend on economic developments. If the economy evolves as currently anticipated, the policy rate will be raised further in September”, said Norges Bank Governor Ida Wolden Bache.

As a result, mortgage interest rates are also rising rapidly. In June 2023, the average interest rate for new housing loans rose by 4.69%, up from 2.4% in June 2022 and 1.75% in June 2021, according to Statistics Norway.

Over the same period:

  • Floating interest rate (Up to 3 months): 4.69%, far higher than the previous year’s 2.38% and 1.74% two years ago.
  • Fixed interest rate (More than 3 months): 4.73%, up from 3.82% a year earlier and 2.26% two years ago
  • Fixed interest rate (1-3 years): 4.75%, up from 3.86% in the previous year and 2.05% two years earlier
  • Fixed interest rate (3-5 years): 4.77%, up from 4.01% in June 2022 and 2.33% in June 2021
  • Fixed interest rate (Over 5 years): 4.63%, up from 4.06% a year earlier and 2.74% two years ago