3  Long-term interest rates, income growth and house prices  Favourable economic developments in Norway have had an impact on developments in our property markets. House prices have risen sharply over the past 14 years. Real house prices have almost trebled. This rise has been considerably stronger than earlier. Moreover, the rise in house prices has spanned a long period. With the exception of a few months in 2003, house prices have risen continuously since 1992. This is the second longest period of rising real prices since 1819. Statistics for earlier years do not exist. House prices also rose in the 18 years between 1954 and 1972, albeit at a more moderate pace. BIS Review 15/2007  7  Norway is not the only country where house prices have shown a strong rise over a long period. House price inflation has been particularly high in Ireland and the Netherlands, but Denmark, the UK and Spain also stand out. The countries where house price inflation has been high are the same countries where economic growth has been strongest. Since prices are rising in tandem in many countries, it is natural to look for common driving forces. With increasing cross-border flows of intermediate goods, capital and increasingly so labour, prices will largely reflect growth and competition in the global economy. If capital or labour becomes too expensive in one country, businesses can relocate production. Prices for fixed factors of production, such as property, will on the other hand reflect income developments in different countries.
In 2006, the population increased by more than 40 000 and the number of households by roughly 30 000. Furthermore, migration patterns in Norway follow the business cycle. Migration to densely populated areas is now rising. Demands for high standards and new building regulations have also pushed up housing construction costs and thereby house prices. 10  BIS Review 15/2007  The rise in house prices has been accompanied by a sharp increase in household debt. In Norway, household debt is now almost twice the level of disposable income, and the debt to income ratio is the highest ever. It is higher than in Sweden and the UK, but lower than in Denmark and the Netherlands. Norway is among the countries with the highest share of owner-occupied dwellings, at around 80 per cent. This high proportion partly accounts for the high mortgage debt of households. In recent years, new loan products have also been launched, facilitating mortgage equity withdrawal. Housing wealth has become more liquid. Borrowers have greater scope for choosing repayment profiles. We cannot identify the exact level of household debt that can be sustained over time, but the rapid accumulation of debt increases household vulnerability. Housing investment has been profitable in recent years. Since 1992, the real rise in house prices has averaged 8 per cent, which is markedly higher than for the entire post-war period. At the same time, fluctuations in prices have been considerably smaller. The main determinants of house price inflation have long been income, unemployment, interest rates and residential construction.