Norway Real Estate Sizzles as Oslo Gains Top 20% for First Time

(Bloomberg) -- Norway's house price rally accelerated with gains topping 20 percent for the first time in the capital Oslo, lending support to central bank concerns about rising risks in the market.

Housing prices prices rose 12 percent nationwide and 21.7 percent in Oslo in October from a year earlier, according to monthly data from Real Estate Norway, Finn and Eiendomsverdi. In Norway's oil capital, Stavanger, prices slid an annual 3.9 percent.

The data supports the central bank's view that it's done with cutting interest rates, after reaching a record low of 0.5 percent. Norges Bank Governor Oystein Olsen argues that central banks should follow a policy of leaning against the wind, or taking into potential financial imbalances, if the rest of the economy allows that.

“Today's figures are in isolation an argument for not lowering the key policy rate further,” said Jeanette Strom Fjaere, an economist at DNB Bank in Oslo, in a note. “It supports our view that Norges Bank is done cutting.”

A rally in home prices is now gaining pace as the economy of Western Europe's biggest oil producer managed to avoid a recession despite being battered by plunging oil prices since 2014. Record spending of oil wealth by the government and a booming housing market have been the major reasons why the economy has kept its head above water.

The Financial Supervisory Authority in September proposed banks have their discretion curtailed and that stricter repayment standards implemented to limit the risk of a housing bubble. The government is currently looking at that proposal. Real estate groups are also urging the government to speed up the planning process to allow more homes to be built, even amid a record pace so far this year.

“It can't be said enough that real estate is also politics,” said Christian Vammervold Dreyer, the CEO of Real Estate Norway. “It's positive that housing starts so far this year are at a record pace, but the supply situation still faces significant challenges.”

To contact the reporter on this story: Jonas Cho Walsgard in Oslo at jchowalsgard@bloomberg.net. To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net.