Norway has 428 municipalities, which contains approximately 2 million residential buildings (detached and terraced houses and apartment buildings). The various municipalities exhibit some degree of variance over a set of factors which taken together may be a good indication for a particular market attractiveness.
Eiendomsverdi AS is a provider of automated valuation services which are employed by banks and covered bond issuers in order to, amongst other things, periodically assess and revalue the residential housing stock which forms the basis for residential real estate lending . The company has ranked all of Norway’s municipalities according to six criteria which together express each local market’s attractiveness, which is also an indication of how well functioning, or liquid, a particular market is.
Each municipality is assessed and ranked according to the following six criteria:
Each of the six criteria is assigned a certain number of maximum points, and each municipality can then score up to 20 points in total, if it ranks the highest in all criteria. The ranking of municipalities are then grouped into three areas of which the lowest score (total points 0-3) means that the municipality has a real estate market which is not well functioning and that liquidity risk here is higher. That means that it could take longer to sell a house and that there is a high degree of uncertainty surrounding the final sale price. A middle segment (total points 4-9) has a more moderate attractiveness while the best scoring segment (10-20 total points) means that the market for real estate in these municipalities is well functioning and the risk of a disappointing sale is limited.
The ranking is also a function of the time period in which the assessment is made. In a market with a downward pricing trend where the difference between asking price and final price increases that would be the case. Currently, this is happening to a moderate degree in municipalities in Norway’s south-west region where the oil industry in going through a consolidating phase with an elevated unemployment rate and lesser population growth. The score in such a region is then slightly lower in 2015 than at other times in the recent past.
In 2015 all of Norway’s 19 regions contained some municipalities where the real estate market is at higher-risk, with the exception of three: Oslo, Akershus and Vestfold, which may all three be seen together as the central area of eastern Norway. On the other hand, all of Norway’s 19 regions contains municipalities with very well functioning real estate markets, which are typically found in the larger towns and cities in each region.
The location of all of Norway’s residential units as classified by Eiendomsverdi is represented by the green bars in the chart below, while SpareBank 1 Boligkreditt’s portfolio of loans are represented by the dark blue bars
Housing stock for Norway and SpareBank 1 Boligkreditt
While Boligkreditt’s portfolio is estimated slightly below the national average in the least attractive residential real estate market, it is slightly above in the middle category. However, both for Norway in the aggregate as for Boligkreditt in particular the vast majority of properties are located in well functioning residential real estate markets.
Looking at SpareBank 1 Boligkreditt’s distribution of loan balances, only a small share of 2.6 per cent of loan volume outstanding are in areas of low liquidity or attractiveness, the pie chart below illustrates the distribution across the three categories:
The weighted average current loan-to-value in the low liquidity segment in Boligkreditt’s portfolio is 52.9 percent, slightly above the weighted average for Boligkreditt’s entire portfolio, which has been consistently around the 50 per cent figure for several years. The valuation of the properties for the current LTV calculation represent the expected value at sale from a distribution range of values developed by Eiendomsverdi for each property (and for new loans the appraisal value at loan approval).
1 Eiendomsverdi has since its inception in early 2000 built a unique database covering the Norwegian property market. By combining publicly available property data with information gathered directly from the real estate agents, the Norwegian housing cooperatives and the real estate developers, the database has become a powerful and critical tool as the basis for our market value estimates. It consists of information on every Norwegian property and the sales price from every transaction since 1990.