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Fast Comment NorwayPreview: Housing prices in March and credit indicator growth in February (due Thursday, April 5)

  1. Housing prices in March and C2 in February, due Thursday April 5
  2. We reiterate our assessment: soft landing
  3. Credit indicator growth probably picked up due to non-financial corporations
Housing prices in March, due Thursday April 5; soft landing
After continuing to slide during the final quarter of 2017, housing prices have levelled out so far this year. In seasonally-adjusted terms, the national housing price index was down by 0.3 percent m-o-m in January, before increasing by 0.4 percent in February. Housing prices in February were 2.3 percent lower than a year ago. This is indeed a soft landing for the overall housing market. Although, some regions have experienced a more pronounced decline. In particular Oslo, where prices are down by 9 percent compared to a year ago. However, these prices were highly inflated prior to 2017, and hence the necessary correction as seen over the past year. That said, Oslo is at the frontier of the housing market improvement happening so far this year, having seen a clear seasonally-adjusted price increase. Digging into the details, we note that the monthly balance between (1) housing units approved for sale and (2) actual sales has improved over the past few months. It is interesting to see if this improvement has happened due to (1) demand picking up sharply or (2) a more muted supply side (as measured by the monthly approval of units for sale). The actual demand side cannot be directly observed, but what we can say, is that actual sales for January and February have been in line with average sales recorded in the years after the financial crisis. However, the number of units approved for sale has been lower. Ahead, it will be more interesting to see if the forthcoming increase in supply will be absorbed. In summary, a small portion of the rise in construction activity has resulted in actual completions at this stage (Oslo). The more pronounced increase will materialise from the second half of this year and through 2019. Even if units under construction are sold in advance, the secondary market (existing homes) will get a contribution from people moving out of their previous homes. However, as stated, this effect remains to be seen and it is not a theme for the near future. In any case, we continue to believe the housing market will escape another downturn. Instead, we stick to our assessment of a soft landing and, if we are lucky, that housing prices in both Oslo and the rest of Norway have already passed the trough. For starters, demand is supported by solid employment growth and rising wage incomes. This also implies households in general will manage the interest rate hike in September, as signalled by Norges Bank. Even though we must assume the supply side will increase from the second half of this year, this flow will eventually moderate in line with the downward adjustment of residential investments. Norges Bank has also assumed the trough has passed. In its latest Monetary Policy Report, the bank anticipated housing price growth of around 0-0.1 percent m-o-m in March (S.A). Further down the road, the bank expects a modest increase through the second half of the year; around 0.1-0.2 percent m-o-m (S.A).
Credit indicator growth probably picked up in February
Finally, we expect credit indicator growth (C2), also due Thursday, April 5, increased a touch in February. Recall that January saw a slightly larger decline than anticipated. However, debt growth for non-financial corporations probably pulled up again in February, lifting the annual growth rate for the C2. For households, annual debt growth has trended gradually lower since the peak in May last year. The outlook is for a further modest decline, as the seasonally adjusted monthly change, converted to an annualised rate, has stuck below the actual annual rate. This must be viewed in the context of the housing market slowdown over the past year.


Marius Gonsholt Hov

Senior Economist


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