The Norwegian economy is doing very well. This also has consequences for the housing market in Norway. There is a scarcity there. Because there is enough money in circulation, house prices are rising very quickly. Many economists fear that the housing market will collapse at some point. This also happened in the United States in the run-up to the Credit Crisis. The Norwegian Central Bank can only take limited measures, such as raising interest rates. Read all about it in this article. Economically, things are going very well in Norway. As a result, Norwegian house prices are rising above the market. Experts are afraid that a new bubble is emerging that could have far-reaching negative consequences for the Norwegian economy. At the end of 2012, Norway was still an economic beacon of light. There are several reasons for this. Norway is one of the few Northern European countries that has not joined the euro. At the time of the Euro crisis, many countries, such as Germany and the Netherlands, were sucked in when Greece and Spain turned out to have large debts. Norway has stayed out of this and is benefiting from it. Norway also has large oil and gas reserves. All these proceeds go into a large fund that covers the costs of aging.
Economy in Norway
As a result of the great economic prosperity, there is little unemployment in the country. As a result, there is a lot of money in the country. At the same time, there is a lot of demand for houses. This is because there is a scarcity of housing. Large cities such as Oslo, Trondheim and Oslo are particularly popular. High demand and low supply lead to high house prices, especially because people can borrow a lot of money from the banks. In addition, interest rates were very low at the end of 2012. This made borrowing and taking out a mortgage very cheap. In March 2012, the Bergen newspaper Bergens Tidende determined how many apartments were for sale. It turned out to be 160 apartments. Three quarters of them were sold within a week. The average sales price was 3,600 euros per square meter. That is a lot more than in a city like Amsterdam when house prices reached their peak.
Rising house prices in Norway
Norwegian house prices rose by an average of 51 percent from 2005 to 2011. Many experts are therefore concerned about this rapid increase and are afraid that the market will collapse at some point with all the consequences that entails. This is exactly what happened in the United States that started the Credit Crisis. Prices cannot rise indefinitely. At some point, banks will stop lending money to consumers. As a result, demand decreases, which means that current owners will not simply sell their house. In that case, they will suffer a loss while also having to pay off their mortgage. There is then a chance that a vicious circle will arise that will affect the entire economy.
Collapse of the Norwegian housing market
The Norwegian Central Bank is trying to cool the housing market, but it has few resources to do so. A normal remedy is to increase interest rates, making it more expensive to borrow money, but the interest rate is so low that this will have relatively little effect. Interest rates cannot rise too much, otherwise they will become out of balance with foreign countries. Another method is to quickly build more houses, but Norway cannot keep up with production. In 2011, 28,000 were built, while average production should be 38,000 by 2020 to meet demand.