Norwegian house prices have grown rapidly since the beginning of 2020. Our most recent estimates suggest that Norwegian house prices were overvalued by 25 percent in 2021Q3 (see Figure 1). The gap continues to increase and suggests that either fundamentals must increase faster than actual house prices, or that house prices need to correct to narrow the gap.
A possible explanation of the increasing gap is that there have been compositional changes in housing demand following the pandemic. The trend over the past year has been that house prices in areas in Eastern-Norway (in particular areas within commuting distance to Oslo) with moderate price levels have been increasing more than areas (in particular Oslo) with high price levels. This may have led to a structural break in the econometric model that may be interpreted as a strong overvaluation of Norwegian house prices. A high price growth in areas starting with low price levels (and lower debt burdens) is less worrisome from a financial stability point of view than a high price growth in areas with high price levels (and therefore also higher debt burdens). Housing Lab will monitor this development closely and seek to understand in more detail whether there is a structural break in housing demand, or whether Norwegian house prices are about to enter an unsustainable territory.
About the index
Housing Lab estimates fundamental house prices for Norway and compare them to the evolution of actual house prices. Fundamental house prices are determined by real per capita income, real after tax interest rates, and the housing stock per capita. Our estimates of fundamental prices are updated and published on a quarterly basis. Due to lags in the construction of the National Accounts data used to estimate fundamental prices, our estimates lag by one quarter. The underlying methodology is based on published research and is documented in Anundsen (2019).