Bubble Index

Housing Lab’s most recent estimates suggest that Norwegian real house prices were overvalued by 7 percent in 2023Q3 (see Figure 1).  For a long period, the interest rate hikes have been accompanied by high inflation, which has put a downward pressure on real interest rates. This has pushed fundamental prices up. With falling real house prices, the gap between actual and fundamental prices has therefore declined throughout 2022/2023. However, real interest rates are now starting to gradually increase, as inflation slowly approaches the inflation target. Higher real interest rates imply lower fundamental house prices and therefore an increase in the gap between actual and fundamental prices. This is the reason why we observe an overvaluation of about 7 percent in the most recent update. This trend will probably continue until Norges Bank starts lowering the policy rate. We therefore expect the drop in house prices to continue into the first half of 2024. Low building activity will eventually push in the other direction, so that house prices will start increasing again as housing supply is reduced.

Figure 1

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).