Is there a bubble in the Norwegian housing market?

Anette Duus & Kathrine Hjelmeland

Student thesis: Master thesis


Over the past years, Norway has been characterized with a substantial growth in house prices. The house prices have never been higher and the growth shows no signs of slowing down. The country has throughout history faced housing bubbles of a varying magnitude, whereas extreme growth has been followed by rapid declines. The main purpose of this thesis is to investigate whether there exists a housing bubble in today’s Norwegian market. A housing bubble is defined as a situation where underlying fundamental conditions cannot defend the current house price level. Underlying bubble theory and Case & Shiller’s bubble criteria’s are presented. Furthermore, the historical development of the Norwegian housing market and hence previous housing bubbles are analysed. A comparative analysis is further on conducted, where historical house price development, GDP, key rate and future expectations are compared among the Scandinavian countries. The analysis is followed by an empirical study where well-known housing theories such as HP-filter, P/R-ratio and Tobin’s Q are applied and discussed. Additionally, well-known house price models are reviewed to identify their explanatory factors for the development in house prices. The discovered factors form the basis for the thesis’ fundamental analysis, where the driving underlying forces for the house price development in the Norwegian market are examined. The majority of the analyses’ findings support the high growth in the Norwegian house prices. It is low unemployment and lending rates, high population growth, immigration and urbanization, strong economical growth, a tax system that favours owning housing, high solvency among household, positive future expectations, high credit growth and relatively liberal lending policies. These factors, in combination with a lag in housing construction due to the lack of available sites in attractive areas and stricter technical regulations, supports the current house price level in Norway. The market is further on characterized with a high activity level, which provides additional support. The analyses clarifies however that household’s debt in relation to disposable income is historically high and that real house prices lies above the suggested long-term trend. This contradicts the belief that a housing bubble does not exist in the Norwegian market. However, the contradicting features are mainly offset by the factors supporting the current house price level. Conclusively, this thesis states that it does not exist a housing bubble in the Norwegian market, as the investigated fundamental factors primarily support today’s house price level.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2013
Number of pages168