What Characterizes Cycles with Crashes versus Corrections in the House Market? An Empirical Test on Price Behaviour Based on Economic Key Indicators
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- Master Thesis 
This thesis aims to examine and compare the cycles characterized by crashes and corrections in the Norwegian house market, by focusing on crucial economic indicators. By employing descriptive analysis and time-series Ordinary Least Squares (OLS) regression, we examine two periods characterized by crashes and corrections. Subsequently, we shall delve into crisis theory and the dynamics between supply and demand. Contrary to previous studies, which primarily focused on the outcomes of bubbles and crashes in the house market, our thesis will focus on the differences between cycles with crash and correction. To examine the differences, our paper deploys Hodrick-Prescott filtering to monitor real house prices and observe how they deviate from the long-term trend. We discuss the economic indicators such as GDP, nominal income, nominal interest rate, Price/Rent (P/R) ratio, house stock, unemployment rate, money supply, and credit volume, and analyse how they affect house prices. The outcome from our analysis illustrates that during both crashes and corrections, house prices were significantly influenced by changes in credit volume and money supply. In scenarios with crashes, these factors contribute to the inflation of house prices and bubble tendencies, eventually leading to a bubble burst and subsequent market collapse. The findings further reveal that unemployment rate and house stock significantly influence the market during crashes, whereas their importance diminishes during corrections. The P/R ratio considerably impacted the model for both types of market cycles. However, in periods with crashes, it increases more over time. Conversely, nominal interest rate, GDP, or nominal income did not significantly influence the model.