Consumer credit (credit card loans, sms loans etc.) are receiving a lot of attention in Norway these days, and rightly so. According to Finanstilsynet, Norway's FSA, it is not very large (about 3% of household debt), but growing very fast—at a 12-month rate of 13.2% at the end of 2016Q3, and accelerating. Overall household debt is growing at barely half rate, 6.2% as of the end of December. Although household borrowing has come down from the neck-breaking pace right before the global financial crisis (peaking at 13.5% in March of 2006), the accelerating growth in unsecured consumer credit is reason for concern.
So, where are these funds going? The popular answer seems to be that people spend more on consumption goods than they can afford. That does not fit with the data, however. As of December of last year, retail sales, at current prices (for compatibility with the credit data), were a measly 0.5% higher than a year earlier. Service trade grows a little more; however, nominal household consumption as of 2016Q3 was only 4.% higher than a year earlier.
Clearly, we have to look elsewhere. And I think the answer is staring us in the eye. People borrow on their credit cards to make down payments on houses and apartments. With the government demanding a 15% down payment and prices growing at a national average of 12.7% as of December and 23,4% in the city of Oslo, a lot of young people are obviously trying to hurry to get into the housing market before prices grow beyond their reach.
So, people—the buyers or their families—are taking huge risks to get into the housing market. Uh, oh. Can they manage it? Their preferred choice is probably to pay down this extremely expensive debt as soon as possible. With average nominal wage growth around 2.5%, that will require sacrifice. Perhaps that is one of the reasons why retail sales are performing so poorly. Then they are probably counting on house prices to continue rising, so that they, after two or three years, can qualify for a larger mortgage. Right. That's what many U.S. house buyers counted on in 2006. The trouble was, the house market, which had been rising madly, peaked, and then tanked.
That can happen here as well. Let's keep an eye on this.