Norway is apparently very happy but what about house prices?

Today we are taking a trip across the North Sea to what we are told is the happiest country on Earth. From the World Happiness Report.

Norway has jumped from 4th place in 2016 to 1st place this year, followed by Denmark, Iceland and Switzerland in a tightly packed bunch. All of the top four countries rank highly on all the main factors found to support happiness: caring, freedom, generosity, honesty, health, income and good governance. Their averages are so close that small changes can re-order the rankings from year to year.

As I note that Finland is 5th this seems to be a Nordic thing although of course it does make one wonder about the criteria as well as how many copies of this were sold there by Pharrell.

Because I’m happy
Clap along if you feel like a room without a roof
Because I’m happy
Clap along if you feel like happiness is the truth
Because I’m happy
Clap along if you know what happiness is to you
Because I’m happy
Clap along if you feel like that’s what you wanna do

There are clear economic influences here as we note that Africa is apparently “waiting for happiness” and intriguingly China is like this.

People in China are no happier than 25 years ago

But returning to Norway there are clear economic influences at play.

Norway moves to the top of the ranking despite weaker oil prices. It is sometimes said that Norway achieves and maintains its high happiness not because of its oil wealth, but in spite of it. By choosing to produce its oil slowly, and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies.

There is a mixture of fact and PR release there so let us look further at the Norwegian economy. Oh and being the top of any list these days poses a question.

Economic growth

This from the Norges Bank last week is not especially inspiring.

In 2016, mainland GDP in Norway grew at the slowest rate recorded since the financial crisis. Growth picked up a little between Q3 and Q4 as projected earlier.

Norway Statistics tells us this.

Continued weak growth Mainland Norway: Growth in the gross domestic product (GDP) for mainland Norway was 0.3 per cent in the 4th quarter of 2016, slightly up from the 3rd quarter.

The annual rate of growth was 1.1% and if we look into the detail there was something familiar for these times.

Consumption of goods increased by 0.6 per cent, after having mostly fallen since the 3rd quarter of 2015. Increased car purchases contributed to more than half of the rise in household consumption of goods.

A hint of easy monetary policy which these days often appears in the car sector. Also something else seems rather familiar.

The declining wage growth that we have seen in recent years will continue, and estimates for 2016 show that the average annual wage growth was 1.7 per cent.

If we return to the Norges Bank report we see that real wages have fallen.

The consumer price index (CPI) rose by 3.6% between 2015 and 2016, while consumer prices adjusted for tax changes and excluding energy products (CPI-ATE) rose by 3.0% in the same period.

A lot of the impact here has been from the oil and gas sector.

What about monetary policy then?

Here we go.

Norges Bank’s Executive Board has decided to keep the key policy rate unchanged at 0.5%. The Executive Board’s current assessment of the outlook suggests that the key policy rate will most likely remain at today’s level in the period ahead.

So like so many other central banks they ignore inflation being above its target ( which is 2.5%) and concentrate on economic growth.

In the wake of the decline in oil prices since summer 2014, the key policy rate in Norway has been reduced in several steps. Monetary policy is expansionary and supportive of structural adjustments in the Norwegian economy,

So far the oil price and industry has been a silent elephant in the room but if we defer that to later let us look at the dangers from low interest-rates which are domestic debt and house prices.

House Prices

Today’s data release tells us this.

On average, prices for new dwellings have increased by 10.4 per cent in the 4th quarter of 2016 compared to the same quarter in 2015…….Prices for existing flats, small houses and detached houses have increased by 15.9, 9.9 and 7.6 per cent respectively from the 4th quarter of 2015 to the 4th quarter of 2016.

If we look into the detail we see that the prices for flats ( multi dwelling apartments) are driving this move. Let us remind ourselves that this compares with wage growth of 1.7% and real wages which are falling and it comes on the back of previous rises. The flats index was at 80 in the first quarter of 2011 and has risen to approximately 117. If we look back for what has happened in the credit crunch are we see that house prices have doubled since 2005 ( to be precise the index is 199.3).

What about debt?

The Norges Bank puts it like this.

Persistently low interest rates may lead to financial system vulnerabilities. The rapid rise in house prices and growing debt burdens indicate that households are becoming more vulnerable. By taking into account the risk associated with very low interest rates, monetary policy can promote long-term economic stability.

That lest sentence is a contradiction in terms designed to fool the unwary I think. We see that borrowing was on the march.

Net incurrence of loans increased from NOK 167 billion to NOK 186 billion, while net investments in deposits decreased from NOK 65 billion to NOK 55 billion.

Debt growth was 5.6% in 2016 and that left the debt to income ratio at 2.35.  Back to the Norges Bank.

Growth in household debt accelerated through the latter half of 2016, and debt is still growing faster than household income. The rapid rise in house prices and growing debt burdens indicate that households are becoming more vulnerable.

The mortgage rate series at Norges Bank was at 3.98% as 2013 ended and 2.49% as 2016 ended so we can see the pattern although the low was 2.35% last August. It is not a surprise to see money supply growth be firm.

The twelve-month growth in the monetary aggregate M3 was 6.5 per cent to end-January, up from 5.4 per cent the previous month.

The debt situation for the government is rather unique. It does have some but if you put in the sovereign wealth fund then net financial assets must be around treble annual GDP.


If we look at the elephant in the room then the oil and gas sector accounts for around 22% of Norway’s economic output. If we add in the fishing industry then Norway is especially gifted in terms of natural resources. The catch in recent times has been the fall in the price of crude oil which sees the Brent benchmark just above US $51 per barrel as I type this. In terms of an annual comparison the price is higher and Norway is one of the countries which most welcomes that but it is a far cry from the US $100+ of a couple of years ro so ago. This has been picked up in the unemployment data where the unemployment rate headed towards 5%. It has now fallen to 4.4% but there are other worries here.

the seasonally-adjusted unemployment decreased by 0.4 percentage points, or 12 000 persons………the seasonally adjusted number of employed persons decreased by 22 000 persons from September to December.

Meanwhile the central banks eases and pumps up the housing market. Maybe us Brits have set a bad example but what must first-time buyers and the younger generation think of this as a strategy?

Let me leave you with something very Norwegian.

A total of 30 800 moose were shot during the hunting year 2016/2017; a decrease of 300 animals from the previous hunting year and a decrease of 22 per cent from the record hunting year 1999/2000.



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

Why are so many central banks cutting interest-rates?

The headline may seem a little bold but the contradiction between it and what we keep being told is my point. If we look at the United States then the Federal Reserve had a policy meeting last night which if we jump back in time a mere 3 months was one at which many expected an interest-rate rise. Of course that did not arrive as the Fed under Janet Yellen continued its Forward Guidance policy of promising an interest-rate rise but not actually delivering one. On that line I found this bit of the press conference to be fascinating.

Sometimes too much attention is placed on the timing of the first increase in the federal funds rate

Although Janet herself is not averse to hinting yet again that an interest-rate rise is just around the corner.

if economic conditions unfold in the way that most of my colleagues and I anticipate we see it as appropriate to raise rates. And as you can see the largest number of participants anticipate that those conditions should be in place later this year.

In a repetition of the Bank of England line we were told that it is more important to focus on the likely path of interest-rate rises. For the two members of the Fed who think that interest-rates will be at 3% at the end of 2016 then rises will have to be both swift and regular, but I guess that they may be literally the only two people who think that.

However we are on a familiar path here where the Fed and indeed the Bank of England hint regularly at an interest-rate rise that so far has not arrived. It was over a year ago at Mansion House that Bank of England Governor Mark Carney stated that a Bank Rate rise could happen “sooner than markets expect” whereas at best it is later.

The Bank of England

Yesterday many thought that the Bank of England was again hinting at a Bank Rate rise in its latest meeting Minutes. Presumably this was based on the fact that 2 members of the Monetary Policy Committee thought the situation was “finely balanced”. On the day one could throw in a soupcon of a recently improved pattern for wage growth. But those two members were actually voting for a rise not so long ago so in a way they have retreated.

In my opinion there is another factor which is operating against this and it is the return to strength of what in other times was jokingly referred to as the Great British Peso (with apologies to readers in Mexico). In these times the balance of power between interest-rates and exchange-rates has shifted in favour of the latter in terms of monetary policy. In the light of that a UK Pound £ which has risen to nudge US $1.59 this morning and above 195 Yen as well as being above 1.39 to the Euro is having an economic impact. For followers of the UK economy this has been one of those relatively rare periods where we discover what it is like to have a strong currency.

Putting that into a Bank Rate equivalent then the rise in the UK Pound £ over the past year is the same as five 0.25% increases. I hope you are sitting comfortably for the two-year comparison which would have Bank Rate some 3% higher. If you imagine what it would do if we raised Bank Rate you begin to understand why I think that an actual rise is not on the horizon and in fact why I think a cut is not as impossible as many would have you believe.

Another way of looking at it has been provided by today’s UK retail sales numbers.

Average store prices (including petrol stations) fell by 2.7% in May 2015 compared with May 2014. This is the 11th consecutive month of year-on-year price falls.

Whilst the oil price fall of late 2014 and early 2015 is of course a major player here it is also true that the strength of the pound has been pushing prices lower and the recent rise against the US Dollar will add to this.

Odd don’t you think that the US Dollar has started to fall recently when so many tell us an interest-rate rise is nailed on? A case of people not putting their money where there mouth is?

As to UK Pound £ strength I think that the tweet I quote from below is rather droll.

The EU referendum uncertainty has pushed the Pound to a 7 year high (@minefornothing ).

Interest-rate cuts

This list got longer at 9 am this morning as Norway nudged it up to 29 nations so far in 2015.

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

Actually they were not quite finished as they threw this into the mix.

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

In some areas the Scandinavian countries are seen as models to follow. If that should apply in the monetary policy arena then we have three with negative interest-rates ( Denmark -0.75%, Sweden -0.25% and Finland -0.2%) and Sweden and Finland also have Quantitative Easing too. Well now Norway may be heading down the same road

Interestingly the usual rationale for an interest-rate cut in these times is not at play here as inflation is close to its 2.5% target.

Consumer price inflation has varied between 2% and 2½% in recent months.

If this was a response to the lower oil price they certainly took their time! It has been relatively stable over recent policy meetings.

Also in a familiar theme of these times house price growth gets shuffled into the recycling bin.

House prices increased by 1.7 per cent from the 4th quarter of 2014 to the 1st quarter of 2015 when adjusted for seasonal variations.

Whilst the annual rate of growth has drifted lower to 7.2% the index which was set at 100 in 2005 is now 179.5. Also we see another feature of these times as prices in the capital Oslo rose by 3.1% in the first quarter of 2015 making the annual rate of growth 11.9%. Still who in the central banking world worries about a house price boom these days? After all they will try to represent it as an increase in wealth rather than inflation. Good luck with them in their effort to present it as an increase in wealth to first-time buyers.

The Norwegian view on world growth does not seem to be especially optimistic.

Global economic developments have so far been slightly weaker than expected in March,


We remain in the same situation which is that whilst interest-rate rises are promised in the UK and US the reality is that 29 central banks have cut interest-rates in 2015 on more than 50 occasions. I am trying to think of any voluntary (not forced by exchange-rates) rise. Sooner or later it will be discovered that this particular Emperor is a bit short of clothing.


The place of my birth was named after the battle which took place some 200 years ago today. A landmark in history which defeated Napoleon although the Duke of Wellington also saw the consequences.

The only thing worse than a battle lost is a battle won.

However there was an economic impact that you might not expect and it is a grisly one. From Number One London.

Of the 50,000 men who fell at the Battle of Waterloo, most were young and healthy and their teeth were of a generally good standard, much better than the teeth employed in the majority of dentures. Having been plundered from the battlefield, most of these teeth made their way back to Britain, the country best placed to afford the new top-quality dentures which would incorporate them. These then became known as ‘Waterloo Teeth,’

Precursors of the Bene Tleilax?