Are We Currently Experiencing a Bubble in the Norwegian Housing Market?

Thomas Fiskerstrand & Sondre Riise Kjelstrup

Student thesis: Master thesis


The Norwegian housing market has experienced an extreme growth in prices between 1990-2017. With this growth in mind, and the great amount of attention the topic receives from both the media and the general public, the Norwegian housing market has become a favorite among experts with regards to predicting and explaining current and future developments. Our goal with this master’s thesis is to investigate whether the recent price development can be supported by fundamental factors. Simply stated, are we currently experiencing a bubble in the Norwegian housing market? For our thesis, we have chosen to use previously made housing price models to conduct a comparative empirical analysis of the housing price development. The models we have chosen to use are the HodrickPrescott Filter (HP filter), the Price-to-Rent ratio and Tobin’s Q. For all these models we have also compared our results with Denmark and Sweden to be able to better explain if the development in Norway is abnormal. We also re-estimated the widely-used Jacobsen & Naug model to investigate if it still explains the development in prices and how the many variables have changed in terms of how they affect housing prices. All these housing price models include specific fundamental factors both on the supply and demand side of housing. The magnitude of these fundamental factors are further analyzed to investigate the underlying factors of the housing price development. Interestingly enough, all housing price models except for the HP filter applied on Norway, point to bubble tendencies in the Norwegian housing market. This is also concluded from Case & Schiller’s seven criteria for a housing bubble at the end of our thesis. However, when investigating the fundamental factors on both the supply and demand side of the housing market the price growth is supported. This is mostly led by a record low key rate, the large deviation between supply and demand in housing, a low and stable unemployment rate, steadily increased disposable income, population growth and positive expectations about future housing prices. With that said, while housing prices have increased, the debt burden among the general public has also continued to increase, making politicians extremely weary of the situation. This is shown by the recent regulations the government has put on the banks’ lending policies. In conclusion, our investigation for this master’s thesis leads us to believe that there is currently no bubble in the Norwegian housing market.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2017
Number of pages137