Norwegian house prices have continued to grow rapidly during the pandemic, but our most recent update suggests that Norwegian house prices were overvalued by only 3 percent in 2020Q4 – down from 9 percent in 2020Q3 (see Figure 1). The gap has closed due to growth in household disposable income, bringing fundamental prices close to actual prices. The growth in disposable income is mostly related to seasonality. Seasonality in income and other fundamental drivers suggests that it may be better to look at trend-developments. We therefore provide a Figure 2, in which we smooth both the fundamental trajectory and actual house price developments. The trend is indicating that house prices were in equilibrium in 2020Q4 – closing the gap that has sustained since 2016. The strong growth in fundamental prices over the past year is tightly linked to interest rate developments. To shed some light on this, we look at quasi-counterfactual developments in fundamental prices, when holding the real after-tax interest rate constant from 2019Q4. The alternative trajectory of fundamental prices in this scenario is plotted together with actual house price developments in Figure 3.
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).