In December, Norges Bank expected house prices to rise by one percent this year. Now the bank is making upward adjustments and expects price growth of 2.9 per cent.
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The central bank states this in a recent monetary policy report Thursday.
As expected, the bank kept the interest rate unchanged at 4.5 percent. In recent years, interest rates have risen sharply, after price inflation skyrocketed in the wake of the pandemic.
In the report, Norges Bank gives its estimates for the development of the Norwegian economy in the years leading up to 2027. They estimate, among other things, house prices, the interest on people’s mortgages and how housing construction is going.
The Central Bank expects house prices to rise by 2.9 per cent this year. It is an upward adjustment from December, when Norges Bank waited housing price growth of one percent this year.
In 2025, the bank expects prices to rise by 6.2 per cent, and in 2026 it expects house price growth of 7.7 per cent. For 2027, the bank expects housing price growth of 6.5 per cent.
“House prices fell last autumn, but they have had a strong development so far this year. We expect this development to continue in the near future”, writes Norges Bank in this year’s first monetary policy report.
«In the long term, we expect that low housing construction and gradually lower interest rates will contribute to housing prices rising further. Our estimates for housing prices are higher than in the December report throughout the forecast period,” writes the bank.
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Peak mortgage interest rate: 5.7 per cent
Norges Bank believes that the interest rate peak has been reached, and expects people’s mortgage interest rates to peak at 5.7 per cent later this year, before it gradually declines.
This is the same as the bank believed in December.
The central bank says it will have to keep the interest rate at the current level for quite some time to come. This means that people have to endure a higher interest rate burden for a long time, and the central bank says that this has an effect on consumption.
“This has reduced households’ disposable income and has contributed to the fact that many households have had to tighten their consumption. Our analyzes nevertheless indicate that the vast majority of households have the finances to handle the increased interest expenses,” writes Norges Bank.
“We expect the interest burden to increase slightly further through 2024. Going forward, a lower debt burden and a decrease in the key interest rate will contribute to the interest burden gradually decreasing,” the bank writes.
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Awaiting recovery for housing investments
Housing investment has been weak in recent years, and profitability in new projects has been weak due to high interest rates and high costs for building houses.
“The level of housing investment in the fourth quarter of last year was 27 per cent lower than the peak in the second quarter of 2021. This is a greater fall than during the financial crisis, but less than the fall during the banking crisis of 1988–1993,” writes Norges Bank.
“In line with the more positive signals, we expect housing investment to gradually pick up from the summer,” writes the bank.
Investments in new buildings will increase, and the pace of construction in the housing industry will thus pick up, predicts Norges Bank. Photo: Håkon Mosvold Larsen / NTB
Believe in real wage growth
The salary settlement was kicked off this week, when the parties in the frontline exchanged demands on Monday.
Norges Bank believes, like many economists, that Norwegians will have somewhat increased purchasing power in 2024.
In their estimates for wage growth, they have included an increase of 4.9 per cent for 2024. This is marginally lower than the estimate from the previous monetary policy report, which was 5 per cent.
If Norges Bank’s estimates are correct, a combination of high inflation leading to strong wage growth will give Norwegians with large mortgages good conditions in the long term. Photo: Gorm Kallestad / NTB
At the same time, they expect price growth to be 3.8 per cent this year. This is a clear downward adjustment from December, when they forecast inflation of 4.4 per cent in 2024.
Thus, according to the central bank, Norwegians will get real wage growthreal wage growthReal wage growth is when wage growth is higher than price growth, so that you get increased purchasing power. .
Furthermore, the central bank believes in continued good wage growth in the coming years, with 4.3 per cent in 2025 and 3.7 in 2026.
Somewhat increased unemployment
Many have feared that the many interest rate hikes would lead to a massive increase in unemployment.
The construction industry in particular has already been hit hard by bankruptcies and low demand, as housing construction has come to a standstill.
Norges Bank, on the other hand, is not very concerned in its estimates about a shocking increase in unemployed Norwegians. In 2023, unemployment was at 1.8 per cent.
This year, they believe unemployment will increase to 2 percent, and that it will increase to 2.2 percent in 2025, and then stay there for a few years.