Norges Bank spår lavere boligprisvekst

Norges Bank expects annual home price growth to be 3 percent this year, down from 5.9 percent last year, according to their latest monetary policy report released on Thursday. The central bank projects a further rise of 3.6 percent next year, 6.2 percent in 2028, and 6.9 percent in 2029. In June, Norges Bank revised its forecast to 3.5 percent for this year and 4.4 percent for the following year, a significant downgrade from its March expectations.

The bank notes that construction of new homes remains insufficient, but the decline in investment has plateaued. "Over the past 18 months, growth in residential property prices has gradually tapered off," the bank states. Lower loan-to-value requirements and falling interest rates likely contributed to the slowdown in annual home price growth last year.

So far this year, home price growth has been low, but regional disparities are significant, the bank points out. "The development has been particularly weak in the Oslo area, while several other larger cities have seen robust growth," Norges Bank writes. The bank expects annual home price growth to pick up to 3.6 percent in 2027, 6.2 percent in 2028, and 6.9 percent in 2029.

Higher interest rates are expected to temper price growth in the short term, the central bank notes. The mortgage rate is projected to rise to 5.6 percent by the end of 2027, then gradually decline to under 5 percent in 2029. "Higher household purchasing power, a smaller supply of new homes, and eventually falling interest rates will push prices up over the forecast period," the bank writes.

While higher household purchasing power could boost demand for new homes, the price gap between new and existing homes may dampen demand, according to Norges Bank. "We expect home building to start picking up next year, but at a moderate pace," the bank states. Construction and engineering firms say the pace of home building is still lagging.

Norges Bank expects a moderate increase in home building investment from next year, projected at 0.3 percent in 2026, 2.7 percent in 2027, and 5.7 percent in 2028. "The level at the end of 2029 is still expected to be lower than at the beginning of 2023," the bank states. Residential building is expected to grow faster than underlying price growth (KPI-JAE) over the next few years and help keep overall inflation in check, the central bank notes.

As inflation eases, home price growth is expected to ease as well, it adds. Norges Bank raised its policy rate by 0.25 percentage points to 4.5 percent on Thursday. Economists were broadly in agreement with the rate hike.