Can fundamental factors justify the Norwegian house price development in recent years?

Abstract

This master thesis investigates if the recent run-up in Norwegian house prices can be justified by the development in fundamental factors. By estimating a model of house prices from 1990Q2 until 2022Q4, we find that lending rates, income, and housing construction influence house prices the most. Furthermore, we do not find that house prices are overvalued in relation to a fundamental value determined by total wage income, housing stock, unemployment rate, banks’ after-tax lending rate, and an indicator of households' expectations of their own and the country's economy. We conclude that the development in Norwegian house prices in recent years, can be attributed to fundamentals and that there is no evidence of imbalance.