Norwegian house prices have grown rapidly in the first quarter of 2021. Our most recent update suggests that Norwegian house prices were overvalued by 10 percent in 2021Q1 (see Figure 1). The overvalution is driven by a combination of rapidly increasing house prices and a drop in fundamental prices. The drop in fundamental prices is mostly driven by a drop in per capita real disposable income. To shed some light on this, we look at quasi-counterfactual developments in fundamental prices, when holding the real per capita disposable income constant from 2020Q4. The alternative trajectory of fundamental prices in this scenario is plotted together with actual house price developments in Figure 2. We find evidence of overvaluation of house prices also in this scenario, but the overvaluation is then estimated to be 3,5 percent.
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).