Norway house prices may fall ‘markedly,’ bank watchdog warns

Norwegian house prices may fall “markedly,” threatening to expose the economy to “substantial” knock-on effects, the financial regulator said.

The overheated housing market is the biggest domestic threat to the economy, the Oslo-based regulator said today in a statement. Households have swelled their debt loads and grown more reliant on interest-only loans as they assume rates will remain low, the regulator said.

“This has contributed to pushing debt and house prices to a very high level in historical terms,” the regulator said. “The international downturn has encouraged expectations that interest rates will remain low for a long period in Norway as elsewhere. Expectations of continued low interest rates and high income growth are sustaining the demand for loans.”

Policy makers in the world’s seventh-largest oil exporter are struggling with a potential property bubble, which Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, has called “dangerous.” Private debt levels have risen to their highest since at least 1988, the central bank estimates, and house prices rose an annual 7 percent last month, according to the Real Estate Brokers Association.

Source: BusinessWeek.com