The Cash-out Refinancing in the Norwegian Housing Market

Abstract

The housing prices in Norway and the ratio of Norwegian household debt to disposable income have reached unprecedentedly high levels in recent years, raising concerns about whether we are in a serious housing bubble. This attracts much attention and initiates debates among politicians, researchers as well as the entire society. Contributing to the debates, the present thesis studies "cash-out" refinancing in the Norwegian housing market and has two main findings. First, along with the soaring housing prices in the past ten years, mortgage borrowers significantly extended their debt levels through home equitybased refinancing. This "cash-out" effect substantially contributed to the high ratio of Norwegian household debt to disposable income. Second, borrowers with larger "cash-out" refinancing are more likely to face payment diffculties with unexpected expenditures, indicating a potential coming danger in the Norwegian housing market. As "cashout" refinancing is blamed to be one of the key drivers of the subprime crisis in the United States (Atif Mian and Amir Su, 2011 AER), our findings call for more regulations in the Norwegian mortgage market.