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Advisor(s)
Abstract(s)
Money and Interest Rate Illusions in the housing market are biases affecting
the behaviour of players being that they base their decisions on nominal terms
rather than real terms. In turn, this can lead to over-valuation and mispricing
of assets, as well as under-estimating current and future mortgage costs, also
fuelling mispricing. This thesis was designed to analyse future predictions of
lending interest rates and housing prices and most importantly; measure
extend of money- and interest rate illusion in the booming Norwegian housing
market.
In April and May 2013 home-owners in Oslo was surveyed with a survey
designed to measure home-owners expectations to mortgage costs and home
valuations, as well as to measure the extend of interest rate- and money
illusions among the sample. At the time being, the Norwegian housing market
had reached unprecedented heights causing daily debates about mispricing
and a possible housing bubble. The survey revealed that respondents who
had bought their home some years ago clearly over-estimated the current
market value of their home, and the majority had unreasonable high
expectations to future price development. Further, the majority of respondents
had unreasonable low expectations to future mortgage costs. Ultimately, the
survey proved that a large portion of respondents was subject to money
illusion, and that the vast majority were subject to two types of interest rate
illusion.