Around the world, housing prices are higher than ever before. More houses are being sold, interest rates can in many countries only go one way (up), and a lot of people are starting to get anxious about whether there will be a crash in the real estate market, like in the financial crisis of 2008.
These market conditions have spiked big changes in the amount of business that banks and financial services around the world are receiving. In the US and Scandinavia especially, banks are reporting record profit numbers, and mortgage comparison companies like lanfordeg.no are seeing a major increase in the amount of requests they receive from people who want to take up loans.
In this article we will delve deeper into the US and Scandinavian real estate markets and what’s happening there, as well as what role Covid-19 may be playing in the big changes that are taking place.
According to The Balance, a company which makes personal finance easy to understand, many crashes happen when asset bubbles burst. In their article, financial experts explain that one way to notice such a bubble is by discovering sharp increases in home sales. This February, home sales in the US were at a high point since the beginning of the pandemic
In 2020, about 30 percent fewer houses were sold as a result of the Covid-19, than before. But when we entered 2021, more and more people were selling and buying new homes. This is because families that left the dense cities went to towns which were not as densely populated.
The number of houses sold went up – and so did the price. Instead of decreasing the value of homes, Covid has increased it. Back in September 2020, the national average house price reached a peak of about $230,000 on average, according to the article.
In addition, The Balance mentions nine other factors which are commonly observed when real estate markets crash. But they list the bursting of asset bubbles as number one. This means that the increase of home sales and price might suggest that there is a crash coming – and that it’s partially or entirely caused by Covid.
To take one example we will be looking at Norway. According to Real Estate Norway, the national association for Norwegian realtor brokerages, house prices have increased by almost 10 percent during the last year. Only in February, about 7,500 homes were successfully sold, and this is close to 4 percent more than last February.
These changes are mirrored in the amount of business that Norwegian real estate companies are getting. For example, Eiendomsmeglerfordeg.no, a real estate agent comparison website, has been seeing especially heavy traffic from the end of 2020, and this trend seems only to be increasing as 2021 goes on.
Similar to the conclusion made by The Balance, Real Estate Norway says that if this increase in house prices continues, there is a high risk of financial instability in Norway. In order to prevent this, they suggest that Norges Bank, the central bank of Norway, should increase interest rates as quickly as possible. If this advice is heeded, they will tick the box of another factor associated with crashing real estate markets: rapidly increasing interest rates.
So the evidence is strongly pointing in the direction that the real estate market is actually about to crash. But, as history has shown, such large matters are complicated and unpredictable, so all we can do at the moment is wait and see.