BIS Review 65/1008  9  There are signs of a cooling housing market throughout the country. House price inflation peaked about a year ago. For Norway as a whole, house prices have remained approximately unchanged over the past twelve months. There are nevertheless regional differences in house prices. House prices are rising fastest in Rogaland, and falling fastest in Hordaland and the inland regions. Housing investment gradually slackened through 2007, reflecting higher interest rates, rising inventories of unsold homes and increased construction costs. Several large residential construction projects have now been shelved. We also expect commercial property starts to show a gradual decline. 10  BIS Review 65/2008  Developments in capacity utilisation abroad have an impact on capacity utilisation at home. After several years of strong growth in the world economy, growth is slowing in a number of countries. Growth in the US seems to have come to a halt, and there are fears of a downturn. Growth is also slackening in many western European countries, but emerging economies such as China and India are still growing at a brisk pace. Inflation is picking up in many countries due to rising food and energy prices. Central bank key rates have been cut in the US and the UK to address deteriorating growth prospects. In the euro area the interest rate has been kept unchanged, while the Swedish central bank has increased its interest rate. Developments in the world economy will affect the Norwegian economy.
Since end-June 2007, international money and credit markets have been marked by volatility, illiquidity and reduced risk-willingness. The problems started in the US housing market, but rapidly spread to other financial market segments. Banks, funds and financial undertakings had to bring back on their books loans from bond markets, they started to question the financial position of counterparties and held on to their money. This led to a marked increase in premiums on interbank loans. When the banks no longer wanted to provide loans to each other, many central banks provided liquidity for an extended term and eased collateral requirements. In periods, Norges Bank has also provided extra liquidity to Norwegian banks. This has reduced swings in the interest rate that banks demand for giving loans to one another. Norwegian banks rely to a large extent on foreign funding. This is why the increase in money market premiums in the US and Europe quickly fed through to Norwegian interest rates even though Norwegian banks are profitable, retain confidence and have limited loss exposures. Banks and investors, both in Norway and internationally, now apply a higher premium and higher prices for providing capital for acquisitions, restructuring and investments, and highly leveraged companies have to pay high risk premiums on loans. It has become more difficult to procure financing. BIS Review 65/1008  11  Household credit growth has eased slightly, but remains high. Corporate credit growth is also high.