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Det norske boligmarkedet –
på vei mot en boble?
Steinar Juel, chief economist
26. november 2009
1
Norway: Home ownership is most common
• An unprofessional rent
market
Rented
23 %
• No regulations on rents
• Housing co-operatives
mainly in larger cities
Housing cooperative
14%
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Owner
occupied
63 %
• No regulations on sales
prices
The tax system favours home ownership
• Interest expenditure deductible from taxable income. No upper limits
• No tax on capital gains when selling a house/apartment the owner
has lived in one of the last two years
• No state housing tax. About 50% of the municipalities have local
housing tax (Maximum 0.7% of 75% of estimated market value)
• Low valuation of houses when wealth tax is levied (about 20% of
market value)
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A majority of detached houses, but strong growth in
multi-apartment buildings
Types of homes (2001)
Appartments
22 %
• Demographic reasons
• And on average, 20-25 % of
households also have a
cabin/second home
Row houses
13 %
Two dwelling
houses
8%
4
Detached
houses
57 %
– Number of cabins grown by 12 %
the last 8 years
Banks are the main providers of home mortgages
Share of home the mortgage market
Share of outstanding mortgages
100 %
State banks
90 %
80 %
70 %
Mortgage
institutes
60 %
50 %
40 %
30 %
Banks
– Market for covered bonds
• 93 % of households’ debt is at
floating rate (Fixed for less than
12 months)
– A small share in foreign currencies
20 %
10 %
0%
Sep-09
5
• Mortgage institutions (bank
owned) have grown in
importance recently
House price development important for the economy
8
8
Residential investments in percentage of GDP
Denmark
7
7
• Contributed significantly to
economic growth up to 2007
– Construction and consumption
6
6
Finland
5
5
Average Norway 1985-
Sweden
4
4
Norway (mainland)
3
3
2
2
90
6
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
• IMF (advanced economies):
Effects after a year of 10%
decline in house prices:
– GDP down 2%
– Private consumption down 2 1/2 %
– Residential construction down 15%
Not financial crisis in Norway
Lessons from the 1988-93 banking crisis still remembered
Bank results and loan losses in percent of total assets
• Banks had no investments in
subprime bonds or other toxic
assets
4
3
1
-2
-3
Source: Kredittilsynet
7
Result before tax
Loan losses
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
0
19
90
Percent
2
-1
• Acute liquidity crisis autumn
2008, which was handled
• Limited investments in other
negotiable papers
• Limited loan losses, higher
pre loss earnings
Banks continued to function well, but became more
careful after Lehman Brothers
Loan-to-value distribution new mortgages
100 %
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0%
Source: Kredittilsynet
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10.4 %
13.8 %
13.0 %
26.4 %
29.7 %
32.6 %
31.1 %
27.2 %
26.1 %
29.0 %
2007
2008
2009
0-60
60-80
80-100
22.1 %
38.4 %
Above 100
• Smaller share of new
mortgages with Loan-tovalue (LTV) above 80 % of
prudent valuation
• Reduced willingness to
finance a new home before
the existing was sold
• It is normal that banks are
more careful during
downturns
Growth in lending have declined, but mainly
because of reduced demand
22.5
% å/å
%
Domestic credit growth
22.5
20.0
20.0
17.5
17.5
Total
15.0
15.0
12.5
12.5
Households
10.0
10.0
7.5
7.5
5.0
5.0
Non-financial
companies
2.5
0.0
2.5
0.0
-2.5
-2.5
00
01
02
03
04
05
06
07
08
09
Source: Reuters EcoWin
9
• Not credit crunch
• Reduced investments,
normal in downturns
• Growth in lending to
households has levelled
out about 6 ½ %
Mild effects on the Norwegian economy
2.0
2.0
% q/q
GDP MainlandNorway
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
15.0
10.0
-5.0
-10.0
-15.0
-15.0
-20.0
-20.0
-2.5
-2.5
09
0.0
-10.0
-30.0
08
Norway
Sweden
-2.0
07
5.0
-5.0
-2.0
06
10.0
Germany
0.0
-25.0
05
% y/y
5.0
-1.5
GDP Euroland
15.0
Manufacturing production*
-35.0
-25.0
Japan
-30.0
*3 months moving average
02
03
-35.0
04
05
06
07
08
09
Source: Reuters EcoWin
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Unemployment increased less than expected
• ..and came from an
unsustainable low level
• Employers have been
hoarding labour
• Unemployment will
probably increase
somewhat more, but still
be at a low level
11
But strong policy measures
6
7
% of GDP
5
Monetary policy rates
6
Change in structural budget
balance in 2009
4
7
%
6
5
5
Riksbank
3
4
4
2
3
3
Norges Bank
2
1
2
1
0
Norway
(mainland)
12
Sweden
Denmark
Finland
USA
Sources: OECD Economoc Outlook no 86
EMU
0
aug
nov
06
feb
mai
aug
07
nov
feb
mai
aug
08
nov
1
ECB
Fed
feb
mai
aug
09
nov
0
High debt and floating mortgage rates; rate cuts
have strong effects
200
190
180
%
%
Households debt relative
to disposible income
200
190
180
170
170
160
160
150
150
140
140
130
130
120
120
110
110
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
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• Among the highest
debt/income rates in the
world (Higher in Denmark)
• Make households more
vulnerable, especially
when most of the debt has
floating rates
• Norges Bank would like the
ratio to go somewhat down
The crisis halted a gradual decline in house prices
140
140
Index
130 2000=100
130
120
120
110
110
Average house prices
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
92
14
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
• House prices went up again
when the interest rate was
slashed
• Pre crisis, interest rate was
increased to cool down the
economy
– A controlled decline in house
prices was welcomed
Innovations in the mortgage market contributed to
house price increases
• Mortgage credit line introduced
in 2005
Type of mortgage
Credit lines
22 %
– Popularity exploded
• Not repayment plan, similar to
an overdraft facility
• Renewed typically every 10
years
Repayment
loans
78 %
• Similar products in other
countries:
– Interest only loans in Denmark
– Flexi loans in UK, Australia and New
Zealand
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The repayment periods have increased
Loan periods for various LTV ratios
• 25-30 years is now quite
common
• Quite normal internationally
• Early 1990s’, Above 20 years
was seldom
Source: Kredittilsynet
16
• Longer repayment periods that
households are able to live with
higher debt
Norway: Elevated house prices, but not bubble - yet
Source: IMF weo Oct 2009
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Source: IMF weo Oct 2009
Conclusions
• Not financial crisis and mild downturn in Norway
• Lessons from the 1988-93 banking crisis are still remembered
• Norges Bank’s rate cuts in response to the international crisis have
postponed an adjustment in households’ debt and in house prices
• Elevated house prices and household debt, but no bubble
• Changes in the structure of housing finance encouraged by
measures taken to remedy liquidity crisis
• Lesson from the 1988-93 banking crisis; Losses on home mortgages
did not kill the banks, but the repercussions on the business sector,
including on commercial real estate
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