Is There a Housing Bubble in the Nordic Capitals or Can House Prices be Explained?

Patrick Prendergast & Oscar Svare

Student thesis: Master thesis


Over the past six years, Copenhagen has experienced a substantial surge in housing prices, outpacing the growth in the Danish housing market as a whole. The price escalation has resulted in housing prices reaching their highest ever levels to date and surpassing the 2006 peak prices nominally by 19-22%. Considerable pricing growth has also been experienced in both the Norwegian and Swedish housing markets, as the buoyant Oslo and Stockholm markets also witnessed new price highs. In 2017, however, prices in both Oslo and Stockholm have started to fall, dropping circa 10% from their peak. While the Copenhagen housing market has not yet experienced price declines, the growth has started to slow down substantially. This has led many experts along with the media to question whether Copenhagen will soon experience similar sharp drops in prices. The purpose of this paper is to establish whether a housing bubble is currently present in the Nordic capital markets for owner-occupied housing, and if not, determining whether the pricing growth can be explained by fundamental factors. Thus, the thesis will provide the reader with an assessment of the current state of the housing markets according to the development in fundamentals. Firstly, the dissertation will adopt a definition of a housing price bubble with accompanied criteria conducive to housing bubble formation. The paper will discuss important dynamics of the demand and supply in an owner-occupied housing market, both in the long-term and short-term. Secondly, the historical pricing development of the three Nordic capitals and their respective countries cities housing markets is presented, describing peaks and troughs. The dissertation will then empirically test for periods of under-and overvaluation using traditional housing price models as the Hodrick-Prescott filter and the Price-to-Income ratio. This will assist the paper in identifying signals of bubble tendencies within the examined period of time. Lastly, a comparative fundamental factor analysis is conducted using fundamental factors suggested by both Case & Shiller (2004)and Jacobsen & Naug (2005), as the underlying mechanism for the recent housing price developments are examined. Through the empirical research, there was a strong indication that prices in Copenhagen are more overvalued in recent observations. However, the differences in the time period may implicate the result. Furthermore, through the comparative fundamental analysis, it was established that the Stockholm housing market.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2019
Number of pages124