The Scandanavian house price bubble of 2015 rages on

If we look to the Nordic region then it is not just the weather that can be icy cold. The world on interest-rates has also dipped more than its toe into icy levels of interest-rates in that part of the world. Here  the acronym ZIRP (Zero Interest-Rates Policy) has mostly been found to be outdated and replaced by NIRP (Negative Interest-Rates Policy). It has been one of the themes of this blog discussing the implications on Denmark where interest-rates have been cut to -0.75%, Sweden where they are -0.35% and Finland where they are -0.2%. Even in oil rich Norway we saw this back on the 17 th of June.

Norges Bank’s Executive Board decided to lower the key policy rate by 0.25 percentage point to 1.00 percent.

Of course there are plenty of ongoing issues for Norway as I note that the price of Brent Crude Oil has fallen this week to US $50 per barrel. Commodity price disinflation is no fun at all if you are one of the commodity producers. Also I note that we were also told this.

The Executive Board’s current assessment of the outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of autumn.

Let us now move on to analyse the impact of such low interest-rates which vary from 1% (and likely to fall further) to -0.75%.


The Norges Bank stated its concerns as it cut interest-rates.

House price inflation has moderated in recent months, but there are wide regional variations. Household debt is still rising faster than income. The low-interest rate level is contributing to sustaining the rise in house prices and debt.

You may note that they are admitting to pumping up both house prices and private debt. Let us look at the latest data.

House prices in Norway increased on average by 6.6 per cent from the 2nd quarter of 2014 to the 2nd quarter of 2015. In Bergen and Oslo, houses prices had the highest increase in this period, with 10.1 and 10.0 per cent respectively. In Stavanger, the prices fell by 3.7 per cent.

So we see something familiar in these times which is a house price surge in a capital city, in this case Oslo. I also note that the overall index is held down by the consequences of the oil price fall as the “oil town” of Stavanger sees house price falls.

If we look for context the house price index where 2005=100 started in 1992 at 34.3 and is now 185.3. So we are seeing house price rises on top of previous rises in a so far  reach for the sky style move with only a brief flicker for the onset of the credit crunch. According to the Financial Times there was a record number of dwellings sold in June so unlike the UK for example volumes are accompanying prices. Also there was this.

Anecdotal evidence backs this up. The former home of the Soviet spy Rudolf Abel in an Oslo suburb sold for NKr6.1m ($750,000) this year, well above the NKr4.2m asking price

Londoners in particular will recognise such a pattern.


We get a clue to the state of play here from this in the Financial Times.

Magdalena Andersson, Sweden’s finance minister, called a 13 per cent rise in house prices in the year to May a “worrying development”.

The official data is up to the end of the first quarter of this year and shows the rate of increase of house prices to be 9% and the index (1981=100) to be at 619. So again we note it is a country which has already seen considerable rises in house prices.

The Riksbank is aware of the dangers here as these excerpts from the July Minutes indicate.

Mortgage lending is increasing far too much. The real economic situation will normalise by the end of next year but this will happen at the cost of ever greater risk-taking on the mortgage market.

Also we see some quotes which are blatant contradictions.

The household debt ratio (debt as a percentage of disposable income) is expected to rise somewhat faster in the short term……….However, the high level of indebtedness needs to be dealt with now.

As mortgage rates in Sweden are mostly at variable rates then there is no avoiding the fact that an official interest-rate of -0.35% accompanied by ever more QE to reduce bond yields will put downwards pressure on mortgage rates and more upwards pressure on house prices.

The Riksbank seems to have suffered some amnesia about its worries in April.

These are coupled, for instance, to household indebtedness and the rapid rise in housing prices.

What could go wrong?


The Danish central bank posted a warning in its latest Monetary Review.

The fall in interest rates in the first part of the year boosted house prices in the spring. The level of interest rates remains low, thereby supporting house prices. Consequently, there is still reason to exert caution in relation to house prices, especially in Copenhagen, where there is a risk that price increases are self-reinforcing.

The capital city effect again which is a theme of these days and the FT explains it thus.

Apartment prices in Copenhagen have risen by a quarter in the past year and are up by about two-thirds since 2011, according to data from Danske.

That is about as bubblicious as we are currently seeing and of course in a country that saw a boom that turned to bust as the credit crunch hit then it would appear that memories are very short. With the official interest-rate at -0.75% then there is food for thought from this. As Bloomberg points out the Danes do have a taste for personal borrowing.

The country’s households, which carry the rich world’s biggest gross debt loads relative to disposable incomes…

Also it is unusual on two counts to see words and phrases like this from a central bank.

There are indications that recent developments in the Copenhagen market for project sales resemble the situation prior to the housing bubble in 2005-07 somewhat.

Firstly “housing bubble” is usually avoided like the plague and added to it is the admittal that one is happening now.


Just to cover off the area we are seeing a different situation in Finland.

In the first quarter of 2015, prices for old single-family houses fell by an average of 1.3 per cent from the previous year in the whole country. In Greater Helsinki, prices went up by 3.0 per cent from the corresponding period of the previous year, while in the rest of the country they fell by 1.8 per cent.

The capital city effect is still there but at a lower level. I guess we are seeing a combined effect here. I have written recently about the struggles of the Finnish economy in the last three years and for now they are outweighing the impact of lower mortgage-rates. So it is a case of watch this space.


International bodies are starting to look at house price developments in Scandanavia. The IMF pointed this out in May about Norway.

House prices rose rapidly over the last decade and most estimates suggest that house prices are significantly overvalued.

If we move to the OECD then its figures will be behind recent developments but even so house prices are 63.6% overvalued compared to rents and 21.9% overvalued compared to income. The numbers for Sweden are 33.8% and 22% respectively and Denmark is at 12.1% and 7.9% which means that the bust which followed the boom didn’t really have much of an impact at all on future behaviour and apparently taught few is any lessons.

In essence here the part of domestic monetary policy which relates to house prices has been subjugated to exchange rate policy in Sweden and Denmark with Norway struggling to find a way of dealing with an oil price which has more than halved. However if we return to the institutional view you may note that they would presumably be happy if the prices could rise forever as the only apparent fear is of future falls.

A significant reduction in property prices could occur.

Those who are struggling to buy as house prices accelerate away would welcome such a development! First time buyers get forgotten in all of this as house price rises blast away from both wage increases and ordinary inflation. We have another outbreak of the war of the generations as the mostly older feel wealthier and the most younger see a future either filled with debt or one where house prices are out of reach on ordinary incomes. As house prices rise the experience sooner or later is that rents tend too as well so there is little opportunity for escape.

One way of helping to stop this mess is to explicitly put house prices in the various headline consumer inflation indices. Regular readers will know that this is one of the themes of this blog. It would not solve the problem but it is one of the pieces required in my opinion. Otherwise central banks are allowed to present inflation rises as a wealth increase and we will have to keep playing Biffy Clyro.

You are creating all the bubbles at night
I’m chasing round trying to pop them all the time
We don’t need to trust a single word they say
You are creating all the bubbles at play


19 thoughts on “The Scandanavian house price bubble of 2015 rages on

  1. The two main producers of North Sea oil are relatively unscathed by the drop in prices.
    Norway has its two huge oil funds, which are boosted by governments pumping asset bubbles:
    Scotland has a diverse economy which, overall, profits from a low oil price.

    If I was i/c of the Norse Sovereign Wealth Fund, I’d be buying up property, especially in SE and London.

    • Hi therrawbuzzin

      I am intrigued. Why would the Norwegian Sovereign Wealth Fund want to invest in SE and London property at these inflated levels.

      Also I hope that they have avoided piling into Apple recently and are not like the Swiss National Bank.

      • Because, although their price is artificially inflated, their overvalue is backed by the UK government.
        If the UK property bubble bursts, the UK economy implodes, as it is absolutely dependant upon property values backing private debt, be it institutional or personal.
        Borrowing from the future, putting off as far as possible the day of reckoning, is all that is keeping the system going.
        A burst property bubble, house repossessions as seen in Ireland and Spain, a collapse of the disposable income harvested, in one way or another, from equity, and that day of reckoning dawns.
        The govt. isn’t fiddling figures for fun; every figure corrupted is done out of absolute necessity for its own purpose, it is not by chance that house prices are excluded from inflation measures.
        Capitalism really has failed, it is insolvent by any measure, but, like many dictatorships whose leader has died, those who benefitted from it are refusing to admit the failure, and delay whilst they grab as much loot as they can.
        This is what the use of social funding to pump asset prices, especially housing, is really about.

  2. Hello Shaun

    after the crisis of 2008/9 those in charge decided that another 1930’s style depression was not going to happen and that the chief cause was asset deflation

    So we got QE 1 2 3 and even 4 and 5

    This hot money was guide to assets and not to those plebs who spend their money on every day essential items such as gameboys and sky TV

    Assets having been taken out of the inflation measures ( food and certainly fuels are regarded as assets even if they have short shelf lifes as they are traded as paper reguarly ) have assured the general public that the TPTB have it all under control and therefore they do no need large wage increases

    After all housing provided a great ATM too most of them .

    To keep assets going up they needed lower interest rates paid on savings thus encouragement to spend on plastic fridge magnets and new salad shooters to go under the kitchen table – essentially we needed to keep the resource + energy to landfill equation going

    Now we see that the CB are having to all drop their interest rates to even MIRP levels in the currency wars that are going on . Nice side effect is that asset prices are again held up and also that the countries with lower asset prices are finding they are being pushed into the scheme

    the result is becoming that the general public of all the western democracies are being fleeced of their assets and in the end , their freedom .

    Once the banks own you – you will never leave

    The Eagles – Hotel California

    Kool game eh ?


    PS : theres nothing you can do , just grab a bag of popcorn and watch the show .

    I mean , look at Greece, do anything ? oh yes lets do the WRONG thing 🙂

    • 2008 has only been deferred by borrowing. Iceland stopped the borrowing. Greece deferred re-adjustment by more borrowing.

      If you are in a hole of debt, additional borrowing is only digging you deeper …

      PS. Grexit means the German central bank has to admit a sizable TARGET2 writedown.

  3. in other news

    The government has begun its sell-off of shares in part-nationalised lender Royal Bank of Scotland, raising £2.1bn, a third below the price it paid.

    who too ?

    ah follow the money , who said pollies aren’t crooked ? , and we’re not have any dirty money here being laundered either , sure, maybe

    now we dont see many clever crooks these days – thats because the government employs all the good ones !


    • Hi Forbin

      On the subject of crime it is good that someone has finally been successfully prosecuted for fixing LIBOR in the UK. However it also seems that Tom Hayes has been made something of a scapegoat as what about those who were the puppet-masters of all this?

      • Yes, he has been made an example. But he has little to complain about – laws were broken. Those who conspired in the same LIEBOR scam should fear that they will be next in court.

        And it hopefully also acts as a deterrent, also preventing future misdeeds by others.

  4. The exclusion of house prices from inflation calcs seems about as dumb as CB’s loading up on apple shares.

    Although the SNB reacted to burgeoning HPI by ending the euro peg one does wonder what will eventually cause the Scandinavian CB’s/govts to reverse Nirp?

    • Dutch, I just noticed your comment. The Danish and Norwegian central banks both target consumer price series with a rental equivalence approach to owner-occupied housing, like this misbegotten CPIH series that Paul Johnson wants the Bank of England to target. However the Swedish Riksbank targets a CPI that does include housing prices, although not in a way that does it much good. I get a headache every time I think about the Swedish treatment of owner-occupied housing, but here it comes: Statistics Sweden uses the rental equivalence approach for owner-occupied apartments or flats, but an ersatz opportunity cost approach for owner-occupied houses. There is a mortgage interest component similar to the one in the RPI. It is the product of an interest rate index and a capital stock index. The latter is approximately a 25-year moving average of the Swedish property price index. The Riksbank, in addition to the headline CPI, looks at measures of underlying inflation that would include the CPIF, where the mortgage interest rate is assumed not to change, and the CPIF excluding energy. In contrast to the UK’s RPIX, the CPIF does not take mortgage interest costs out of the inflation measure, it just assumes a constant mortgage rate, so BETTER THAN 5% OF THE INDEX BASKET FOR THESE CORE INFLATION MEASURES WOULD COME FROM A 25-YEAR MOVING AVERAGE OF PROPERTY PRICES. How dysfunctional is that!? Now you see why every time I think about how the Swedes measure OOH I get a headache.
      Here is a Riksbank paper in English on the subject, if you are interested:

  5. Hi Shaun,
    Down here on the other side of the world in New Zealand we awoke to the news that the latest Global Dairy Trade auction overnight saw a drop in average prices of 9.3% since the last auction a fortnight ago and Auckland house prices are rising by almost 20% a year.
    Enough to make you choke on your Wheat-Bix.

  6. Shaun – great post as usual.

    Was looking at the Swedish economy and it seems that growth in 2014 mainly came from residential construction (urgh)? PMIs have been very strong so far, but official data says exports & manufacturing are not that robust, at least compared to household borrowing …

    What’s driving the dovish view in the Swedish economy at the moment? Domestic consumption?

  7. A great post but with the usual one-eyed view on danish economy. The note by Bloomberg constantly forget to take into consideration that the danish households also have the greatest savings in pension funds. Furthermore a wellfare system in Denmark based on production and not on borrowing

    • Hi JH Wandall and welcome to my corner of the web.

      Yes Denmark’s economy does have strengths but pumping up private-sector debt then telling people that they are wealthier due to higher house prices has many problems as we have learnt in the UK. Unless of course the pensions will finance the debt ala a type of Japanisation…

  8. Great blog, Shaun, as usual. All of the Nordic countries you wrote about have been providing Eurostat with quarterly consumer price series for owner-occupied housing (OOH) since last year but only Statistics Finland, as far as I know, has been publishing them. This is a link to their latest publication for 2015Q1:
    The new dwellings component of the Finnish index for purchases of dwellings showed an increase of 1.2% (4.7% annualized) in 2015Q1, while the new dwellings component of the OOH index showed an increase of 0.7% (2.9% annualized). The two estimates are consistent with each other since the new dwellings component in OOH is the aggregate of two components: one for new dwelling purchases and another for self-build dwellings and major renovations.

    • Hi Andrew

      Thank you for the data and let me reply with this from Statistics Sweden in the morning here and early hours for you.

      “Real estate prices for one- or two-dwelling buildings increased by almost 4 percent during the last three-month period May – July 2015, compared to the previous period February – April 2015. Prices increased by 9 percent on an annual basis during the last three-month period May – July 2015, compared to the same period last year.”

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