Are fundamentals behind the price rise or speculative factors - if so, are there any portents of a housing bubble in Norway today?

Abstract

Norway has gone through a period of very high growth and skyrocketing housing prices. The run-up in housing prices has happened due to fundamental factors low unemployment, increasing population, disposable income, high GDP, low interest rate and the like. However, there may be some non-fundamental factors such as speculation and debt that may drives prices. The meteoric rise in house prices has attracted much spotlight and has concerned prominent economists, researchers, politicians and the like in Norway. It has become a hot button topic which has led this topic to be debated due to skyrocketing house prices. The media has given much coverage to house prices and even played a crucial role in order to cajole people into buying expensive properties by means of appealing advertisements. Financial liberalization has also done its part as well by making it possible to materialize huge mortgages.

There are some who has claimed that the high housing prices has reached to its unhealthy level and even they have used the word of bubble that may account for mounting house prices. On the other hand, there are others who opine that rocketing house prices can be justified due to high economic growth. The incredible boom in the Norwegian economy has now turned into a period of lower growth because of the slump in oil prices and the unemployment has heightened up in places like Stavanger due to its oil concentrated position. The interesting part is that despite encountering hemorrhage of jobs, the house prices are still rising in Stavanger. Therefore, we found this topic very relevant for the master thesis and so we wanted to investigate quantitative support of whether this meteoric rise in house prices can be justified or not.

The purpose of this thesis is to investigate whether the fundamentals are behind or whether speculation is driving the house prices upwards. We will discuss the opinions of prominent researchers, economists and politicians and thereafter investigate whether we can support their opinions quantitatively by running regression analysis. This will enable us to find support for whether the prices are driven by the fundamentals or whether there are some portents of a bubble in the Norwegian housing market.