Disagreement in the Norwegian housing market

Abstract

Do differences of opinion affect house prices? This thesis investigates how disagreement affects house prices and housing turnover. We construct a disagreement index using household’s beliefs on future house price developments. The main contribution of this study is that the household survey captures real expectations in contrast to many similar studies that use analyst forecasts or volatility based measures. This study finds that higher disagreement is significantly associated with lower future house price returns. A one standard deviation increase of disagreement index translates into a 33.8 basis points lower return the following month. The results are robust when controlling for Norges Bank key house price determinants. Granger causality tests indicate that disagreement has a predictive power for house price returns and not vice versa. Disagreement is insignificant in explaining turnover. Overall, our results lends support to predictions of models with disagreement and helps highlight the importance disagreement has in explaining price movements.