An Analysis of the Norwegian Housing Cycle

Martin Lidtveit & Kristin Albrigtsen

Student thesis: Master thesis


In Norway, the house prices are very much in focus. Both the development of the house prices and speculations about future development is of high interests for Norwegians. The Norwegian housing market is interesting to investigate due to the high number of households’ owning their own house in compared to other countries. The purpose of this thesis is to analyze the Norwegian housing cycle and investigate five fundamental factors that may affect the housing cycle. We look into housing constructions, the business cycle, oil price, monetary policy and households’ debt. The thesis is an exploratory study where we try to answer our problem statement of “How do various macroeconomic fundamentals affect the Norwegian housing cycle?” The analysis contains an evaluation of existing research regarding the housing cycle and historical development in Norway. In addition, we use the Hodrick-Prescott filter to detect cyclical changes in the house prices and the fundamentals. We also performed a correlation analysis to discuss possible relationships. We found a relationship between the cyclical movements of the house prices and the fundamentals. Housing prices usually tend to lead the fundamentals. The most substantial correlation coefficients are between the house prices and housing constructions. Higher house prices appears to affect housing construction positively. The housing cycle also seems to be leading the business cycle. We found that oil price could affect the house prices in areas where the oil sector is operated, and possible two-way interaction between the house prices and monetary policy. Increasing key rate puts pressure on the housing prices, and additionally, higher house prices may lead to increasing key rate. House prices and debt levels seem to move together. Higher house prices stimulate increasing debt for households’, which again have a positive effect on the price development. The housing cycle is complex, and the fundamentals are affecting each other. The fundamentals move together with the housing cycle, whereas monetary policy moves countercyclically. The thesis does not assess the actual effect of the fundamentals on the housing cycle, only how they move with each other. For further research, a regression model to determine the exact impact would be applicable.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages143