Is Norway Experiencing a Housing Bubble? A Review of the Norwegian Housing Market

Nicklas Huse Frogner & Petter Ustvedt Solerød

Student thesis: Master thesis


Over the last decades, Norwegian housing prices have experienced substantial growth. The price level is higher than ever before, and the price growth of housing have shown few signs of slowing down. The state of the Norwegian housing market has been widely discussed in media, both nationally and internationally, making it an interesting topic to investigate.
This dissertation seeks to investigate whether the increasing price level can be explained by underlying fundamental factors, or if it is caused by expectations of continuous growth. The latter would mean that Norway is experiencing a housing bubble.
The historical development of the Norwegian housing market is analyzed, highlighting historical bubbles. This analysis is followed by an explanation of underlying bubble theory and Case and Shiller’s bubble criteria. Further, various Norwegian house price models are assessed in order to identify the exploratory factors affecting the development of housing prices. This assessment is followed by empirical studies applying several established theories; the Hodrick-Prescott filter, the P/R ratio, and Tobin’s Q. The empirical study is followed by an analysis of the underlying fundamentals of the housing market, based on the earlier identified exploratory factors. An assessment of the psychological aspect is further on conducted, before Case and Shiller’s criteria are revisited.
The empirical studies presented contradicting results on whether the Norwegian housing market is currently overvalued. The results suggest that some of the existing theories are not adequately suited for identifying housing bubbles.
The fundamental analysis illustrated how most exploratory factors support the price growth, making it clear that housing prices in Norway are not solely driven by expectations. The assessment of the psychological aspect revealed how the majority of Norwegian households expect housing prices to continue rising. It is argued that all of Case and Shiller’s criteria are met, but it is concluded that several of these criteria are fulfilled due to fundamental factors, and, therefore, not indicators of a housing bubble.
Conclusively, this dissertation states that Norway is not currently experiencing a housing bubble as it is defined in this paper. However, there are several aspects of the Norwegian economy indicating that the current house price level may not be sustainable in the long run.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages136