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Central banks warn on Swiss and Norwegian house prices
Fears that the global surge in asset prices could turn into a crash have heightened after central bankers in Switzerland and Norway indicated they may take hawkish action to address house prices and strained family finances.
Low interest rates globally have pushed up asset prices and raised concerns that houses and other investments are over-valued.
As the global economic resurgence gathers pace, this is adding to concerns that markets are overheating and could crash or be tipped into a downturn by central banks raising interest rates, harming the wider economy.
The Swiss National Bank said: “Prices for single-family houses and owner-occupied apartments began to rise more rapidly again. Residential investment property prices also rose, albeit at a somewhat slower pace. Owing to the strong growth in recent years, this segment in particular is subject to the risk of a price correction over the medium term.”
The SNB is expected to tighten up on bank lending to rein in the market, as it cannot raise interest rates for fear of strengthening the currency further and because inflation is already very low.
Norway’s Norges Bank indicated it would like to raise interest rates in the coming months and pointed to the housing market as one potential source of risks.
“High house price inflation has contributed to the increase in household debt. Over the past year, house prices have fallen,” the central bank said.
“The correction in the housing market has reduced the risk of an abrupt and more pronounced decline further out. Household credit growth remains high, but over time lower house price inflation will dampen debt growth.”
Analysts said this an important factor facing the policymakers.
Jane Foley at Rabobank said: “The reason why the Norges Bank would like to normalise [interest rate] policy, is almost certainly linked with the housing market and current high levels of household debt.”
Øystein Olsen, governor of the Norwegian central bank, recently complained that low interest rates globally have forced up house prices in the country. Much of the recent attention has focused on the risk of the US economy and financial markets overheating, but these warnings are a reminder of the global nature of the current cycle.
Other countries are also in a similar position. Last month the International Monetary Fund highlighted the Netherlands, saying that the "rapid increases in house prices and highly indebted households reflect structural weakness in the Dutch housing market.”
It urged the country’s banks to rein in high loan-to-value lending “to reduce household financial vulnerabilities”.
Moody’s, the credit rating agency, said in December that “house prices appear most stretched in Norway, Belgium, Germany and France. But in Canada, Denmark, New Zealand and the UK, which have endured prolonged periods of housing overvaluation, there are signs of a return to internal market equilibrium in recent quarters”.