Bubble Index

Housing Lab’s most recent estimates suggest that Norwegian real house prices were overvalued by a bit more than 9 percent in 2023Q4. Real house prices continued to fall throughout 2023, but fundamental house prices fell more rapidly than actual real house prices, leading to a larger gap between actual and fundamental prices. The main contributing factor has been the increase in real interest rates due to lower core inflation. 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 9 percent in the most recent update. We believe that this trend will continue until Norges Bank starts lowering the policy rate. We therefore still expect the drop in real house prices to continue into the first half of 2024. Low building activity will eventually push in the other direction, so that real 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).