The housing market will turn in 2018

Record high housing price growth and tightening of credit access will affect the housing market for quite some time ahead, but housing experts believe the market will turn during 2018.

"Throughout the year, the housing market has turned significantly. Especially in the capital, price developments have taken a dramatic turn: supply has increased considerably and prices have fallen more than nationally. The largest analysis environments have repeatedly adjusted their forecasts downwards, but one thing most agree on is that it will turn in 2018," says Ann Kristin Aure, macroeconomist at Bonum.

Many new construction projects have been launched in the market, and some have been put on hold awaiting a better market.

"The supply of unsold second-hand homes in Oslo is still high, but lower than the peak early this autumn. At the same time, activity in the market is good, even though it generally takes somewhat longer to sell. Since the summer (July to November), according to Eiendom Norge, slightly more second-hand homes have been sold in Oslo than in the same period last year. This indicates a well-functioning market, and that the price decline we are seeing is most likely a short-term price correction. This reduces the risk of an abrupt and more marked decline further ahead," explains the macroeconomist.

According to several estate agents Bonum has spoken with, it is the well-established adults who are the major home buyers. First-time buyers are significantly limited by the credit restrictions that came into force from 1 January 2017, whilst those in between who are buying larger and more expensive homes are somewhat hesitant. Aure points out that the Ministry of Finance has recently asked Finanstilsynet to provide an assessment of the mortgage lending regulations by March 2018. If this temporary regulation is abolished or adjusted, this will bring back the youngest buyer groups.

Large regional differences

"Although the housing market has been set back somewhat nationally, there are large regional differences. Several areas within commuting distance of Oslo are experiencing positive developments in housing price growth. According to Eiendom Norge, housing prices in Østfold have increased by 7.7 per cent over the past 12 months, whilst housing prices in Oslo and nationally have fallen by 4.4 per cent and 0.5 per cent respectively," says Aure, adding that Bonum is experiencing good activity in the market, and that demand for good properties is definitely present.

"The Norwegian economy has clearly picked up over the past year, interest rates will remain low for a long time ahead and employment is higher than expected. An already high inventory in Oslo will probably become even higher after New Year, which will dampen the usual January effect. Historically speaking, housing prices in Oslo fluctuate far more than nationally, so therefore we expect that price growth will pick up again towards 2019," notes Bonum's macroeconomist.

The housing regulations segregate purchasing interest effectively, but unsocially.

"In my opinion, Ann Kristin Aure hits the mark well with her description of the housing market. Households with accumulated housing wealth trump everything, and benefit from a housing market with fewer buyer groups competing for new flats. The effect of the mortgage lending regulations has so far most visibly hit Oslo, where the price of a flat easily challenges the five times rule, even though buyers' ability to pay may be excellent. Then the pressure shifts from working people with good salaries and little equity to Bærum, Follo, the North corridor, Asker and other housing alternatives within commuting distance," says Kristen Rikter-Svendsen, head of market at Profier.

In the rest of the country, the price correction and future price developments are more related to supply and demand according to Rikter-Svendsen.

"In Tromsø, Trondheim and Bergen there is a marked upturn in projects for sale, and there is competition for customers. Winners must offer better flats, with focus on higher quality and have the best plots," he says.

Not impossible

"The market is demanding, but not impossible. The second-hand market has satisfactory liquidity in most parts of the country. New housing sales are clearly down, which is natural when uncertainty is created regarding access to credit and one must expose oneself doubly in the housing market until the new flat is ready," explains Profier's head of market, continuing: "For housing developers with many sales in place in flats under construction, it is also important to have an overview of customers' ability to complete the flats that have already been ordered."

Therefore, Profier has particular focus on the banks' handling of their own customers, the margins on mortgage loans, the competitive situation in the banking market and the implementation of the mortgage lending regulations.

Imbalance

"The housing market has, in the big picture, a strong correlation to wage growth, and the larger fluctuations in the steady development of housing prices are mainly related to access to credit, unemployment figures and how the population develops," he explains.

With the elderly wave washing over most parts of the country, the desire for more central housing and with low unemployment, Rikter-Svendsen finds it difficult to believe that the housing market should have poor development in the long term.

"We will, however, have to live with the imbalances created by last year's large price increase and the tightening of credit access for quite some time ahead," he concludes.