An update of Housing Lab’s Bubble Index shows that Norwegian real house prices were overvalued by 18 percent in 2024Q2 – down from a bit more than 19 percent in Q1. Over the past couple of quarters, real actual house prices have started to slowly increase, whereas real fundamental house prices are still down – although at a slower pace. This has contributed to create a sustained and large deviation between actual and fundamental price. The main contributing factor has been the increase in real interest rates due to a combination of higher nominal rates and lower core inflation – both pushing the real rate in the same direction. Higher real interest rates imply lower fundamental house prices. The underlying econometric model suggests that an increase in the real interest rate of one percentage point is associated with a fall in fundamental prices of nearly 14 percent. Lower fundamental prices imply an increase in the gap between actual and fundamental prices. Like in the previous updates, we still believe that this trend will continue until inflation stabilizes around the inflation target and/or when Norges Bank starts lowering the policy rate. We therefore expect the real house prices to remain elevated relative to fundamental prices a bit more. Low building activity, high wage growth and lower interest rates will eventually push in the other direction, so that fundamental prices will start increasing again towards the end of 2024, or early 2025.

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About the index

Housing Lab estimates fundamental house prices for Norway and compare them to the evolution of actual house prices. Fundamental house prices are determined by real per capita income, real after tax interest rates, and the housing stock per capita. Our estimates of fundamental prices are updated and published on a quarterly basis. Due to lags in the construction of the National Accounts data used to estimate fundamental prices, our estimates lag by one quarter. The underlying methodology is  based on published research and is documented in Anundsen (2019).