Strong house price growth – what now?

For the fourth consecutive month, house prices are rising, but what can we expect going forward?

"For the fourth consecutive month, house prices are rising, both nationally and in Oslo. Particularly in the capital, house prices have completely turned around since the house price fall throughout much of 2017. This is in line with our forecasts and it appears that growth will continue for a while yet," says Ann Kristin Aure, macroeconomist at Bonum.

Last year, Aure stated that much of the price development could be explained by a record-low policy rate and the supply of housing, and expected then that house prices would take a positive turn in 2018. During the first four months of the year, house prices in Oslo have increased by 8.3%. House prices in Oslo are now 3.8% lower than they were a year ago, but if the development continues in the same trend as we have seen in recent months, house prices will be at the same level during the summer.

Healthy correction

"In retrospect, we see that the price fall in 2017 was a healthy correction for the housing market in Oslo. We were never concerned that the price fall would be particularly long-lasting," she says.

In August, Aure stated that most macroeconomic conditions pointed towards a positive development in house prices. Despite the price fall, there has nevertheless been good activity in the housing market throughout the entire period, albeit somewhat more challenging for new housing projects. Now, however, it appears to be loosening for new housing sales as well, when the trend shift is a fact and market psychology has turned.

Christoffer Askjer, partner at Sem & Johnsen, can confirm that they are noticing considerably greater demand for new housing.

"The decline in demand was, for that matter, mainly an Oslo phenomenon, and the projects we have had outside Oslo have had good demand all along," he says.

Askjer believes that demand is now back in Oslo because buyers have confidence that the market will continue to rise, and that there is therefore little risk associated with buying a home that will only be completed somewhat further ahead in time.

"From summer 2018 and through 2019, the completion of new housing is expected to increase significantly. Consequently, the supply of existing housing will likely increase from summer, which could dampen the price growth we are now experiencing. The existing housing supply will probably not experience as large an increase as the number of new housing completions, however, as a significant proportion of these have been bought by investors. An expected interest rate increase later this year could also contribute to dampening price growth," he says.

More selective buyers

"With an increased supply, housing buyers will become more selective, and it will become more important to stand out with good projects. There is good activity in the market, and particularly in Oslo the activity level has picked up considerably. At the same time, we note that the city is growing outwards, and that several areas within commuting distance to Oslo are experiencing a positive development in house prices," Aure points out.

Bonum opened its own department in Drammen in 2017, and is now also looking at the possibility of investing in Østfold.

"We believe that the Drammen region and several municipalities in Østfold will experience strong growth in the years to come as well. Over the past 12 months, house prices in Drammen have risen by 2.5%, whilst house prices in Fredrikstad/Sarpsborg have risen by 3.4%. By comparison, house prices nationally have fallen by 1.0% in the same period," the macro analyst concludes.