substantially reduced equity ratio. as a result, banks are more vulnerable to disturbances in funding markets. thus, low risk weights for residential mortgages also lead to higher liquidity risk in our banking system. a high level of tax incentives for house ownership and a large volume of adjustable - rate mortgages contribute to wide fluctuations in activity and prices in the norwegian housing market. 1 the rise in house prices over the past two decades has also been very strong compared with countries where housing bubbles have burst. we have been through the longest period of uninterrupted house price inflation. in real terms, house prices in norway have tripled since the trough in 1992. house prices fell in 2007 and 2008, but have picked up again and have, in nominal terms, surpassed the summer 2007 peak. norwegian household debt is high compared with households in other countries. the number of residential mortgages with a high loan - to - value ratio, i. e. above 80 per cent, has also increased. periods of sharply rising house prices have historically been followed by periods of declining prices. house prices can fall considerably over only a few years. loan - to - value ratios will then increase. mortgage companies should therefore take housing market fluctuations into account when issuing covered bonds. conclusion i think it is fair to say that housing finance in norway is in its infancy. there is a large proportion of adjustable - rate loans. fixed - rate loans offered in norway are less customerfriendly than, for example, in denmark, where it is less expensive to cancel a fixed - rate mortgage and where there is a secondary market, providing risk diversification. mortgage companies have a limited role in housing finance. loan - to - value ratios are in some cases alarmingly high. and last, but not least, banks finance their housing loans by means of shortterm asset swaps in foreign markets. this is not a sustainable solution. i hope that this forum can contribute towards the development of a better foundation for housing finance in norway. see van den noord, paul ( 2005 ) : “ tax incentives and house price volatility in the euro area : theory and evidence ”, economie internationale 101, pp. 29 – 45. this paper shows that house price volatility is higher in countries where tax regimes favour owner - occupied housing. see also imf ( 2004 ) : world economic outlook, september, p. 81, where house price volatility is higher is countries where adjustable - rate mortgages

when their risk appetite drives prices higher relative to economic fundamentals, there may be a greater risk of outsized drops in prices that can be destabilizing. 4 the fed looks at a broad range of asset markets, including equities, treasury securities, corporate bonds, loans, and real estate. this table from our fsr shows the sizes of the asset markets discussed in this section as of q2, the most recent data available. the largest asset markets are those for residential real estate, equities, treasury securities, and commercial real estate ( cre ). 5 this year, asset valuations have generally risen notably above their historical levels. in particular, prices of residential and commercial properties remain above levels historically associated with fundamentals. house prices, relative to rents, are near alltime highs. further, prices have started increasing again in recent months after falling for more than a year. commercial property prices also remain high relative to rental income. i am watching closely the extent to which post - pandemic supply and demand patterns see the box “ vulnerabilities from asset valuations, risk appetite, and low interest rates ” in board of governors of the federal reserve system ( 2021 ), financial stability report ( washington : board of governors, may ), pp. 15 – 18, https : / / www. federalreserve. gov / publications / files / financial - stability - report20210506. pdf. see board of governors of the federal reserve system ( 2023 ), financial stability report ( washington : board of governors, october ), pp. 5 – 6, https : / / www. federalreserve. gov / publications / files / financialstability - report - 20231020. pdf. - 4normalize. demand in the office sector has remained weak, particularly in central business districts and coastal cities, with vacancy rates increasing further and rent growth declining. finally, average delinquency rates for commercial mortgage - backed securities have moved up recently, as office and retail loan performance has deteriorated. if delinquency rates generate selling pressure or increase notably further and result in forced sales of properties, then cre prices could decline sharply. another notable market development has been the significant increase in longerterm bond yields since june. decompositions between changes in expected rates and term premiums depend on the specific models and assumptions used, but i would say that an expectation of higher near - term policy rates does