Long-term effects in the Norwegian housing market : an empirical analysis

Abstract

In this thesis we have analysed the Norwegian housing market. On the basis of our examination of possible factors affecting the housing market, we have estimated a model to explain the Norwegian housing prices. Especially, we wanted to test if the state of the economy, categorized by the different phases in a business cycle, had a significant effect on the housing prices We have estimated a short-term dynamic and a long-term solution, where we show the different factors’ affect on housing prices. We start by presenting the development in the Norwegian economy, and the peculiarities of the housing market. To create a basic understanding of housing models and previous research, we present the two main models for housing prices conducted in Norway the last 15 years. We then presented the variables we believed to affect the housing prices and the statistical methods used. The final model was estimated and tested, and proved to be good at both explaining and predicting the housing prices in the period from 1986 to 2011. In our final model, we could not find any significant effects from the different states in the business cycle. We found that the short-term dynamic in the housing market are affected by the change in housing prices in earlier periods, and the long-term solution is affected by the development in households’ real disposable income, housing stock and real interest rate. We also tested the models ability to predict housing prices. In general the predictions were fairly decent, which indicates that the variables have a consistent economic grounding throughout the period. There will although be problems with using the model to predict future housing prices, since the development in the variables are uncertain and often subject of revising in retrospect.