The IMF has told Norway to act to deflate its housing bubble, which it warns is the second biggest in the world after Canada. In its latest report on the oil-rich Nordic country, the fund estimates that property prices are as much as 40% overvalued, up from 15% over-valued in 2011. 

‘A large house price correction could significantly impact the economy, dampening consumption and residential investment’, the IMF said. ‘The negative impact could be significant given the high level of household debt and the fact that a certain segment of households is heavily indebted with debt to income ratio higher than five.’

Norway’s neighbours Sweden did not fare much better, with the IMF warning that it too is suffering from a housing bubble and has called for a halt on interest only mortgages.

‘A sudden and sizeable fall in Swedish property prices could have a knock-on effect on consumption and unemployment, with negative repercussions on banks through non-performing loans and funding costs’, the  IMF  wrote in a new report published on 6 th September.

The IMF concluded that the fall out could have regional consequences across Scandinavia and the Baltic region and identified the main risks as the high level of household debt, which is amongst the highest in the OECD.