An Assessment of the Housing Market in Oslo: Is the Price Development Supported by Fundamental Factors?

Susanne Holthe & Catharina Holthe

Student thesis: Master thesis


Over the past years the housing market in Oslo has been characterized by substantial escalation in house prices, exceeding that of the Norwegian market as a whole. The topic has been widely discussed in the media, both nationally and internationally. Renowned economists, Karl E. Case and Robert J. Shiller, have predicted a housing bubble in Norway since 2012, which has not occurred, making the Oslo market an interesting topic to investigate. The main purpose of this thesis is to evaluate whether existing house price models have been able to determine fair house prices, and if not, if including more fundamental factors in a house price model would better determine reasonable prices. In addition, to understand the price development from a broader perspective, we have made considerations also from a psychological point of view. Both the historical and current housing market in Oslo is examined to assess whether the house prices are supported by fundamental factors or if the price growth are solely grounded on expectations.An empirical analysis of several well-known theories is conducted to determine whether existing models are sufficient, among them the Hodrick-Prescott filter (HP-filter), Price-to-Rent ratio (P/R-ratio) and Tobin’s Q. In addition, Case and Shiller criteria’s for the presence of a housing bubble are presented. The models show contradicting results on whether historical bubbles are captured and if there are bubble tendencies in the current market. The results from the models emphasize that some of the existing house price models to varying degrees is not good enough at determining fair house prices. Our fundamental factor analysis includes a discussion on identified factors used in various house price models. Our assessment points out that local factors such as a great lack of supply of new housing combined with increasing demand due to urbanization and immigration, are important factors that the existing models do not reflect in a sufficient manner. Based on the existing fundamental P/R-ratio, we present a model enabling the possibility to capture local characteristics of the housing market in Oslo. Using the most important factors found in the fundamental factor analysis, the extended model supports the development in the real P/R-ratio to a higher degree than the original fundamental P/R-ratio.Conclusively, this thesis state that there is not a housing bubble in the market in Oslo, as the investigated fundamental factors supports the high price level in the current market. Our main finding is that some of the existing models lack the local factors necessary to make well-informed conclusions of the conditions in a market. It is further believed that Case and Shiller’s criteria’s would have provided better conclusions with more fundamental factors included.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages166