The effect of oil prices on housing prices in the Norwegian market

Abstract

The oil industry makes significant impact on Norway’s economy. In 2016, the export value of crude oil, natural gas and condensate in Norway is around NOK 350 billion, which takes approximately 47 percent of the total value of Norway’s exports of goods. The oil reserve has guaranteed long-term economic boom for the country, while the economic growth in turn has benefited the country’s real estate market, where the house price in Norway has increased 8.3 percent in average in 2016, with hardly any price decline in the recent twenty years. In this analysis, we try to estimate whether the oil prices have significant impact on the house prices in Norway, by using an empirical model that intends to explain fluctuation in house prices using various fundamental variables including oil prices. We also notice the recent decline in house price in Stavanger, the oil capital in Norway, is closely related to the consistent low oil price starting from July 2014. Therefore, regional differences in house prices possibly caused by oil industry distribution in the country is also investigated. Conclusively, we find that oil prices have significant direct effect on the national house prices, and that the house prices in regions where the economy relies largely on oil industry are more sensitive to oil price fluctuations.