The Norwegian Housing Market: Do current housing prices in Norway, and its four major cities - Oslo, Bergen, Trondheim, and Stavanger - reflect fundamental values?

Abstract

This thesis investigates whether current housing prices in Norway, and its four major cities—Oslo, Bergen, Trondheim, and Stavanger—reflect fundamental values. Using an error correction model, we analyze the short-term and long-term impacts of key economic variables such as total wage income, bank’s lending rates, unemployment rates, building permits, and household expectations on housing prices. Our findings indicate significant regional variations, with Oslo showing the slowest adjustment speed towards a long-run equilibrium. The results also highlight the substantial influence of the bank’s lending rate and unemployment on housing prices. For instance, a 1% increase in the bank’s lending rate leads to short-run housing price decreases of 2.28% in Norway, 2.93% in Bergen, 2.79% in Trondheim, and 2.41% in Stavanger, compared to only 1.33% in Oslo. Unemployment significantly impacts housing prices in all regions except Oslo. Although it is difficult to determine with great certainty whether housing prices are overvalued based on the fundamental variables tested for in our analysis, our data suggests that current housing price trends are unsustainable across all regions, particularly in Oslo, which exhibits significant deviations from these fundamental values.