Measuring The Heat of Oslo’s Housing Market : A Composite Indicator to Improve the Informational Efficiency in the Residential Real Estate Market

Abstract

This paper develops a composite indicator that estimates the relative bargaining power between buyers and sellers in Oslo’s residential real estate market. It constitutes a geometric mean of three min-max scaled indicators that measure (1) how long it takes to sell a home, (2) the disparity between sale and listing prices, and (3) the relative housing supply. The paper’s objective is to develop a robust measurement of market temperature that improves the informational efficiency in the Norwegian real estate market. We find that information on bargaining power can guide market participants with prospecting, bid, and sales strategies. We also find that it can support decision-makers in monitoring the impacts of policies, assessing market dynamics, and benchmarking regional differences. Uncertainty analysis suggests that the index is generally unbiased. Variancebased sensitivity analysis reveals normalization to be the only significant uncertainty factor. We show that index trends coincide with Oslo’s home appreciation rates and the media’s perception of market heat.