An Empirical Analysis of the Housing Market in Oslo: Do We See Signs of a Potential Housing Bubble?

Camilla Løfsgaard Lie

Student thesis: Master thesis

Abstract

In this dissertation I will investigate the price development in the housing market in Oslo in recent time. I want to analyze what the most fundamental factors driving the house price development are, and how strongly the price development react to changes in these factors. The main objective for writing this thesis is to analyze what drives the price development in the housing market in Oslo in order to answer the following question: “Are there indications pointing towards a bubble in the housing market in Oslo?”. In my analysis of the house price development in Oslo I find that house prices grow faster than the inflation, rents, and construction costs. I interpret this as the housing prices are inflated compared to the overall economy. The question is whether this excessive price growth can be explained by development in underlying fundamental factors, or whether this price increase is an indication of a speculative bubble building up in the market. To investigate this question I conduct an econometric analysis of the housing market in Oslo between the first quarter of 2000 and the fourth quarter of 2016. The explanatory variables chosen for the analysis are: unemployment, interest rate, income, household expectations and housing construction. My results show that much of the development in housing prices can be explained by development in underlying fundamental factors. Further, I found that interest rate and unemployment are the two most important fundamental factors explaining the house price development in Oslo. The econometric modeling an testing has been conducted in Eviews and the other data processing has been conducted in Excel.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages100