Amid the collapse in crude oil prices, the Norwegian central bank cut rates in December (after 1000 days on hold) and is likely to cut again as economic growth stalls. However, the country's financial regulator is warning falling interest rates risk pushing the Norwegian housing market beyond its breaking point into a "self-augmenting spiral." With prices up 8.1% YoY, and up 85% nationwide in the last decade, even Robert Shiller warned of Norway's housing bubble in 2012 - and since then household debt (and home prices) have surged. As Bloomberg reports, Morten Baltzersen, head of Norway’s Financial Supervisory Authority stressed "continued rapid growth in debt and house prices isn’t sustainable." Unintended consequences? As Bloomberg reports, a combination of plunging oil prices and falling interest rates risks pushing Norway’s housing market beyond its breaking point, the financial regulator said. Norway’s housing market, which Nobel laureate Robert Shiller all the way back in 2012 said was in a bubble, has been inflated amid an oil boom that has driven wealth creation and kept unemployment below 4 percent. Norwegians have more debt than ever before, owing their creditors about twice their disposable incomes, a level that Olsen and FSA’s Baltzersen have said is unsustainable. And it's about to get worse... The economy of western Europe’s biggest oil exporter is now struggling to expand amid a slump in crude. The central bank cut rates in December and said there’s a 50-50 chance for another reduction, triggering a mortgage war as banks such as DNB ASA and Nordea Bank AB lowered rates to lure customers. “Lower interest rates and strong competition in the mortgage lending market could contribute to continued rapid growth in debt and house prices,” Morten Baltzersen, head of Norway’s Financial Supervisory Authority, said in an e-mailed reply to questions this week. That could drive the housing market into a “self-augmenting spiral,” he said. “I’m beginning to be a little bit worried,” Steinar Juel, chief economist at Nordea, said by phone in Oslo. Another rate cut from the bank would be risky and drive house price gains up by 15 percent, he said. “We could also have a situation where we really are in a bubble.” Regulators have tried to slow the expansion... In an effort to cool the market, Norway has introduced a number of measures including raising capital requirements, the risk weights that lenders assign their mortgages and capping loans at 85 percent of a property’s value. But, the government rejected advice from the FSA for tighter regulations to slow debt growth. The Conservative-led government last year allowed more flexibility in loan standards, allowing banks to lend up to 90 percent of a property’s value. Leaving the regulator threatening once again... Baltzersen said he has monitored the rise of house prices last year.... “Continued rapid growth in debt and house prices isn’t sustainable,” he said. * * * Ironic really that American policy makers have never seen a housing bubble they didn't like and yet we see with Norwegian regulators that there are very clear consequences to playing in the currency wars (both at home and abroad)