The sharp increase in the value of dwellings is one of the main factors behind growth in household debt. House prices have risen by an annual average of around 9 per cent over the past 10 years. High and persistent house price inflation might contribute to holding up credit growth even after prices have levelled off. Since only a portion of the housing stock is sold each year, there will for a long period be some dwellings that are sold at a higher price than when they were last sold. This contributes to sustaining high credit growth. As a result of low interest rates, the household interest burden will remain fairly low in spite of high debt growth. It may prove to be particularly challenging for borrowers to assess their debt-servicing capacity over time in a period when the interest rate is abnormally low. Such a low interest rate also places greater demands on banks in assessing the creditworthiness of borrowers. According to money market expectations, the interest rate will eventually stabilise around 5½ per cent. This is consistent with an inflation target of 2½ per cent and a long-term real interest rate on a par with the level abroad. This interest rate, with an addition for banks’ margins, provides a more realistic indication of the interest rate level that will apply over the loan’s life than the floating interest rates prevailing today. The interest rate can be used to reduce credit demand.
The North-West and Sogn og Fjordane: In the North-West, there are still only a few contacts that report an increase in employment. Most companies can increase activity by 10-15 per cent without altering their workforce. Retail trade and construction are the only sectors that report an increase in employment. Construction companies  4  BIS Review 61/2004  report some signs of labour market tightness, due in part to the start-up of work on the Ormen Lange project. The use of foreign contract labour in connection with seasonal work in the fish processing industry, the hotel sector, tourism and the engineering industry is increasing. Growth in household demand, petroleum investment and increased activity in the business sector are paving the way for a rise in employment in the period ahead. On the other hand, intensified competition and continued rationalisation in the business sector may have a dampening impact on labour demand. Developments in real economic variables are mirrored in credit markets. In recent years, household income has shown solid growth, and household confidence has been high. Corporate earnings, however, have been low, and until recently companies have primarily focused on enhancing efficiency. Total credit growth is rising approximately on a par with GDP growth. The composition of credit growth in the past year, however, has given ambiguous signals to our interest-rate setting. Growth in household borrowing is high, while growth in corporate borrowing is low. Developments in corporate borrowing shadow developments in corporate investment. Household debt has increased sharply since 1994.