An empirical analysis of the Norwegian housing market: Are there indications pointing towards a housing bubble in the Norwegian market?

Karen Høvring & Maiken Ludt Parmo

Student thesis: Master thesis


In this thesis, we aim to provide whether there are bubble tendencies in the Norwegian housing market, or if the price growth can be explained by fundamental factors. Moreover, we will investigate if our provided models underline the formation of the housing bubble in Denmark that occurred during the years before the financial crisis in 2008. After approximately 40 years with a relatively synchronized development in house prices in Norway and Denmark, Danish house prices evolved differently after 2008. Norwegian house prices picked up relatively fast, whereas Danish house prices continued to fall – which subsequently has proven to be a result of a bubble burst in Denmark. Accordingly, we argue that our findings for Norway from the provided models will be more reliable if the similar models show vital signs of the bubble formation in Denmark before the burst. Additionally, Norway and Denmark are two quite similar countries in terms of demographics, governance and traditions, which we believe make the analyses more comparable and valid.To get an understanding of how bubbles are formed and cracks we have adopted Hyman Minsky's model. When considering factors that drive house prices, we have been looking at macroeconomic variables in light of Jacobsen and Naug’s article “what drives housing prices?”. Case & Shiller’s seven criteria for a housing bubble are discussed in relation to the Norwegian housing market today, and to the Danish market prior to the financial crisis, while the empirical analysis is conducted on the basis of a Hodrick-Prescott filter and the Price-to-Rent method. Throughout the thesis we have been aware of the fact that we will be unable to find definite and concrete answers to our research question, but we will emphasize if house prices are overvalued based on our fundamental and empirical analyses. It is both challenging and problematic to reveal a housing bubble with certainty before a potential bubble burst, since what will happen ahead of time is unknown.The results which emerge in this thesis gives us reason to argue for overpriced house prices in the Norwegian housing market, which provides indications of the existence of a housing bubble.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages138