Global Courant
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On Monday morning, the Norwegian Bureau of Statistics will release new figures on debt growth in this country. Household debt growth has generally fallen throughout the year and stood at 3.7 percent in August. While Ola and Kari Nordmann’s debts continue to rise, SSB is making it clear this time that debt growth is below the rise in prices.
In fact, regardless of whether you look at households only or also at municipalities and non-financial corporations, debt growth has been lower than price growth since April 2022.
– Domestic debt growth has been lower than inflation for over a year. The previous period when price growth exceeded debt growth was in the aftermath of the banking crises of the 1990s, says senior advisor Even Oppedal at SSB.
Higher real interest rates
When inflation is higher than debt growth, the real value of your debt is lower.
– High wage and price growth reduces the real value of debt, says Handelsbanken chief economist Marius Gonsholt Hov.
At first that is nice, but Hov thinks that in the current situation Norwegians are more concerned about the continued interest costs, which have become increasingly higher now that Norges Bank has increased interest rates.
– If you look at the disposable real income of households, there is a good chance that we will see a decline in purchasing power this year, while interest costs will continue to rise. This puts a clear damper on the debt that households take on, he says.
Norges Bank assumes that disposable real household income, excluding stock dividends, will decline by around two percent this year.
Next year, Handelsbanken, like Norges Bank, believes that there will be real wage growth for Norwegians, i.e. that wage growth will be greater than price growth. They also think that disposable real income will be slightly higher next year.
But the next decade will likely be different from the last, according to Hov.
– Even if we return to a situation where household purchasing power has increased and interest rates have been reduced from the levels we have now, it is a very different situation from what we have seen before when we have seen a decline in interest rates combined with inflation, which has meant that real interest rates have been negative and sometimes fallen sharply, he says.
The article continues below the advertisementThe chief economist points out that the implicit real interest rate in the US has risen to just over two percent in ten years. So although high price growth has reduced the real value of household debt, the market’s assessment is that the real price of money in the coming years will be clearly higher than during the crisis years with pandemic and war, Hov said.
The article continues below the advertisementHe adds that real interest rate developments in Norway, which is a small and open economy, will reflect international developments.
– As a result, a number of values will continue to come under pressure, especially the housing market, both the regular housing market and especially commercial real estate, he says.
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Starts to bite
According to Hov, slowing debt growth should be seen in the context of Norges Bank’s interest rate hikes. In short: interest rates are starting to bite.
– There is a particularly close connection with taking on debt and developments in the housing market, he says.
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Over the past four months, seasonally adjusted house prices have fallen on average. The number of unsold second-hand homes is at the highest level since Eiendom Norge started keeping statistics in 2009. Many predict a cold autumn on the housing market.
– The housing market is now showing that it is slowing down further and if you look at the equilibrium indicators they indicate that prices will continue to fall throughout the fall, more than is normal. We believe in a further seasonally adjusted decline, says Hov.
– As we talk about an impending housing market rebound in 2025, we also believe the prospect of high real interest rates will halt that rebound, he says.
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The last time this happened was after the banking crises in the 1990s
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