A combination of plunging oil prices and falling interest rates risks pushing Norway’s housing market beyond its breaking point, the financial regulator said.
The economy of western Europe’s biggest oil exporter is now struggling to expand amid a slump in crude. The central bank cut rates in December and said there’s a 50-50 chance for another reduction, triggering a mortgage war as banks such as DNB ASA and Nordea Bank AB lowered rates to lure customers.
“Lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices,” Morten Baltzersen, head of Norway’s Financial Supervisory Authority, said in an e-mailed reply to questions this week. That could drive the housing market into a “self-augmenting spiral,” he said.
Norges Bank Governor Oeystein Olsen had kept rates higher than warranted by inflation alone to protect the economy from overheated credit and housing markets. The bank ended a 1,000-day pause in rates in December with a surprise cut to 1.25 percent after oil prices collapsed.
Norway’s housing market, which Nobel laureate Robert Shiller all the way back in 2012 said was in a bubble, has been inflated amid an oil boom that has driven wealth creation and kept unemployment below 4 percent. Norwegians have more debt than ever before, owing their creditors about twice their disposable incomes, a level that Olsen and FSA’s Baltzersen have said is unsustainable.
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