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Why property prices in Norway may not fall as sharply as first feared

A more optimistic forecast from DNB Markets indicates that house prices in Norway will bottom out sooner than expected and that the dip won’t be as great as first thought.

Published: 27 January 2023 12:10 CET

Pictured is an apartment block in Norway.

House prices in Norway may not fall as sharply as first feared. Pictured is an apartment block in Norway. Photo by Marla Prusik on Unsplash

House prices have fallen in Norway since last autumn. The dip comes after two years of robust growth and high demand in the Norwegian property market.

Much of the demand was triggered by historically-low interest rates making mortgages more affordable.

Over the past few months, several forecasts have indicated that home prices in Norway will fall for at least the first half of the year.

Analysts think this is due to a strong rise in interest rates throughout 2021 and 2022. Norway’s central bank, Norges Bank, has increased the key policy rate strongly in an attempt to control inflation.

DNB Markets, the securities division of the bank DNB, believes that house prices in Norway will likely bottom out by April, business and financial site E24 reports.

DNB Markets has issued such an optimistic forecast because it doesn’t believe that house prices follow interest rates as closely when interest is raised as when it is decreased. This means that house prices rise faster when rates are dropped but fall slower when they are increased.

“We have had a few rounds internally and have come to the conclusion that it does not look as bad as our gut feeling might suggest,” Oddmund Berg, a senior economist at DNB, told E24.

READ MORE: How bad is the situation in Scandinavian housing markets?

For this reason, the bank’s securities division also forecasts that property price decreases won’t be as steep as other financial institutions have predicted either.

Handelsbanken and Nordea Markets predict falls of four and five percent, respectively, this year, while DNB believes house prices will drop 2.6 percent.

In addition, it believes that the market will return to prices seen during the August 2022 peak by 2025.

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How not to buy a house in Norway: Five pitfalls to avoid

Norway’s property market moves quickly, and most homes do not spend too long on the market.

Furthermore, rising property prices can make it feel like it’s constantly getting harder and harder to get on the property ladder.

However, despite rising prices and the market’s breakneck speed, it’s important not to rush into things and end up making a massive mistake.

Not sorting your paperwork

Before you are ready to start putting in offers on houses, you will need the mortgage offer from the bank. Therefore, you should fix this before really getting stuck into viewings.

Banks in Norway offer mortgages of up to 85 percent of a home’s value, with a 15 percent deposit required.

They will also stress-test your finances against interest rate raises and consider factors such as your income and any existing loans you may have. In Norway, your debt typically can’t exceed five times your income when purchasing a property.

Once you’ve got an offer, you can approach other banks to see if they will better the offer you received, and after this, you are ready to begin searching as you know what you can afford.

READ ALSO: What foreign residents in Norway need to know to get a mortgage

Not reading the small print

There is quite a lot of important small print when purchasing a house that will cost you big time if you don’t properly read it.

All homes in Norway generally come with an in-depth report on the property’s condition, and in most cases, the buyer is responsible for uncovering flaws in the property.

During a condition report, an appraiser will check for deterioration on the property, assess the materials used in the construction and thoroughly evaluate the home for any areas where maintenance will be required in the immediate or near future.

Pay particular attention to things like the electrics, plumbing, kitchen, bathroom, and moisture damage, as repairs to these can be incredibly expensive.

Then there’s the information about the housing association to which many, but not all, homes in Norway belong.

It is crucial to check the association’s monthly costs and shared debt, as well as any future plans for major renovations that could increase those costs.

Being able to tell a well-run housing association with healthy finances from one in a more perilous position can make or break whether a home is for you.

READ ALSO: How to analyse a Norwegian housing association’s finances

Showing the realtor your proof of funds

Banks issue proof of funds certificates (Norwegian: finansieringsbevis). However, you should never show this to the realtor selling the property.

This is because it will reveal how much money you have available, and as the realtor is working for and being paid by the seller, they will do what they can to ensure a higher price for the seller.

Bidding on homes that you aren’t quite sure about

Once you have your mortgage offer or proof of financing, you can put in offers on homes.

Be warned, though. You shouldn’t just put in bids to be involved and get a feel for the market.

You also shouldn’t put in offers on “maybes” either, as all bids in Norway are legally binding.

This means that you could end up having to buy a property you put a speculative bid on if it is accepted by the owner.

Agents do their utmost to prevent people from bidding on more than one home at a time, but some offers can slip through the cracks, so you also need to make sure you only bid on one property at a time.

You also need to make sure you don’t offer more than you have, as you will be expected to follow through with the purchase.

It is incredibly difficult to back out of a home purchase in Norway, and if you do manage to wriggle out of the process, it will likely end up costing you quite a lot of money.

Not having money for the other costs

Given that property is typically the largest purchase of most people’s lives, it’s easy to lose track of the smaller costs.

One of these is stamp duty (dokumentavgift). When buying a freehold property in Norway, you will need to pay 2.5 percent of the purchase to the state in stamp duty.

Banks in Norway don’t offer financing for stamp duty. So it’s worth remembering that you will need to pay this cost.

One advantage of buying into a housing association is that you will not need to pay stamp duty.

READ MORE: The hidden extra costs when buying property in Norway

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