Finnish Housing Bubble

http://housingfinland.blogspot.com/

housingfinland — Sun, 11 Nov 2007 22:06:46 +0100

The blog have moved to a different location : http://housingfinland.blogspot.com/

Bank Of Finland 3rd Quarter Bulletin

housingfinland — Tue, 06 Nov 2007 06:59:55 +0100

"Housing prices generally react fairly sensitively to fluctuations in interest rates. The recent uncertainty on the international financial markets has increased the Euribor rates on noncollateralised interbank loans in the euro area."

"This affects the interest rates on the housing loans of Finnish households, since the Euribor rates are quite commonly used as their reference rates."

"According to the forecast assumptions based on market expectations, short-term interest rates will in the next few years be higher than in recent years on average, and the growth rate of housing prices is forecast to slow further, from about 6% this year to around 2-3% in 2008-2009."

"A further rise in house prices is nevertheless suggested by continued favourable development of household income and employment."

So if you haven't read my article regarding "the prophet of the past", you should. But in any case if the prediction goes as planned, it would mean that maybe the peak will be reach by 2009. in 2008-2009, in real term it would mean that house price won't grow any further for the next 2 years as inflation is predicted to be around 2-3 % too (although the common people will tell that inflation they see is over 10%)

Now the question what will happen in the next 2 years, and more interestingly in 2009 (a repeat of 1989?). Luckily I'm not a real estate agent, a construction builder.

All in all , The soft landing will all depends on how the credit crunch evolve in the next 12 month and how much losses we are going to have.

The US has decrease it's interest rate, not a good sign, signaling risks down the road. If history speaks by itself, Europe should follow suit in 6 to 12 month, by cutting rate as the economy is slowing down.

The Asia economy are riding an economic boom as the one the Europe and US had back in 2000. An overheated economy where inflation started to pick. The problem is Asia central bankers and economy are not efficient and resilient.

Economists: "The great prophets of the past"

housingfinland — Mon, 05 Nov 2007 20:51:49 +0100

This appellative is obviously not intended to be a compliment but rather a criticism for not being able to predict the future.

Some background:

-1929: The Great Depression (also known in the U.K. as the Great Slump) was a dramatic, worldwide economic downturn beginning in some countries as early as 1928

-2001-2002: Finland plunge into a recession. Technology shares slumped.

-2007: US Housing Slump, the real estate bubble burst. Interest rate were 5.25% in August 2007.

-2007: Euro interest rates rose from 2% (December 2005) to 4% (November 2007).

Some predictions:

"There is no Bubble to burst (US)" - Jim Folkman, Vice President Home Builders Association of Central New Mexico, 23 Sept. 2005

"An actual price bubble cannot be seen on the Finnish housing market, and sudden changes on the price level are not in sight." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

"The idea that we are going to see a collapse in the housing market seem improbable (US)" - John Snow, US Treasury secretary, 20 Sept. 2005

"US FED continues to increase the interest rates gradually towards a “neutral” level... 3.5 percent." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

"At present, there are no grounds (For the ECB) either to raise or lower the interest rates." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

"...a serious depression seems improbable (US)" - Harvard Economic Society, 10 Nov. 1929

"For the immediate future, at least, the outlook is bright (US)", Irving Fisher, Ph.D. in Economics, early 1930

"The Research Institute of the Finnish Economy, or ETLA, sees the next five years in Finland as a period of continued economic growth.", ETLA, 06 Jun. 2000

"The fundamental point is that the British economy is strong..." -Alistair Darling, UK Treasury chief, 05 Nov. 2007

"Housing is still the best investment, without questions (US)"- Stan Sieron, Illinois Association of Realtors, 29 jul. 2006

Finnish estate agents see slowdown in price rise rate

housingfinland — Mon, 05 Nov 2007 06:53:37 +0100

"Finnish estate agents believe the rate of increase of home prices will slow down and sale times lengthen, real estate company Kiinteistömaailma quoted its survey as saying on Monday."

"Almost half of the respondents said they saw flat home prices within the next six months while a third believed prices would rise by a maximum of three per cent."

"Kiinteistömaailma interviewed 560 estate agents across Finland."

Coming from a real estate agent, you can bet that it means that price will go down in the years to come.
Regarding the sentence "Human being, Human being..." it was taken from a real advertisement from Kiinteistömaailma.

Finland's construction market set to slow down - survey

housingfinland — Sun, 04 Nov 2007 06:31:43 +0100

Let just cross the fingers and hope all for the best. Below is the analysis from Thomson financial reagrding a survey done in finland last week:

"The boom in the Finnish construction market looks to be nearing an end as demand for housing eases and labour shortages drive up costs, figures released today suggest."

"Developers, it noted, have reported an increase in the number of unsold flats on their books. One of them, YIT, last week cut the number of residential unit builds it expects to start up in Finland next year to 2,300 from its projection of 2,700 made three months ago."
"'Indicator data, such as the number of building permits issued, indicate continued sluggish growth in housing construction in the immediate months ahead,' it said in its latest review of the economy."

Finnish Broadcasting Company quits Music Centre Construction

housingfinland — Fri, 02 Nov 2007 08:35:37 +0100

The Finnish Broadcasting Company (YLE) said Friday it would exit the Helsinki Music Centre project because the costs had spiralled out of control.

YLE added on its website it preferred to be a tenant in the building instead of owning part of it.

YLE gives as the reason for its withdrawal its poor economic state and the steady rise in construction costs.
The broadcaster had said earlier that the ceiling for its share of the Music Centre bill was 35 million euros.

Last spring, the board of the real estate company behind the venture rejected all three tenders received for the main construction contract, as two of them were not in compliance with the invitation to tender and one was too expensive compared with the estimated costs.

Confederation of Finnish Industries:"The Peak is behind us"

housingfinland — Thu, 01 Nov 2007 06:30:42 +0100

The Confederation of Finnish Industries (EK) said in a statement Thursday that its latest business tendency survey indicated that the country's economy was beginning to leave the peak of the economic cycle behind it.

Leif Fagernäs, the chief executive of the EU, said that although uncertainty was on the rise there was no steep turn for the worse on the horizon.

In construction, the boom has continued. There is still a substantial shortage of labour and costs have increased considerably. The number of unsold flats has grown significantly. The construction boom is expected to cool down somewhat.

In construction, the outlook indicator for October was -16, against 9 in July. In October 9 per cent of respondents anticipated improvement and 25 per cent anticipated a downturn. Two thirds - 66 per cent - of the companies do not expect any changes in the coming months.

The sales prices of construction companies increased rather rapidly but the pace is expected to slow down markedly before the end of the year. Costs have continued to increase very steeply, although the trend is expected to be less negative in the remaining months of 2007.

The shortage of skilled labour in construction was still substantial. In January 45 per cent of manufacturing companies identified a shortage of skilled labour as a bottleneck (48 per cent in July).

NCC: "Finland remained flattish"

housingfinland — Wed, 31 Oct 2007 16:13:35 +0100

Swedish construction company NCC AB reported a third quarter profit after financials of 814 mln skr, down 9.6 pct from a year earlier hit by weakness at the company's property development division.

"The company's other divisions experienced a mainly positive quarter although Finland remained flattish. NCC said it is taking longer to sell newly built housing units in Finland and also to some extent in Latvia."

'Prospects for 2008 appear favourable in the markets in which NCC is active, despite expectations that growth will be lower than in 2007. However uncertainty has increased somewhat concerning the trend in the housing market compared with the market assessment published in the six month report,' said NCC.

Future Price Evolution, what do you think?

housingfinland — Tue, 30 Oct 2007 07:49:15 +0100

For those who are not aware of the flat price evolution throughout the past, you will learn that housing price follow a cyclical pattern. Boom are always been followed by bust.

Like in the previous boom, we had two price growth phase that lasted 10 years: 1979 until 1989 with a stabilization level established during the period of 1982-1986.

Similarly, we have had a boom that lasted (?) 10 years: 1997 until 2007 with a stabilization try around 2001-2003.

Now we have technically 5 possible scenarios.
+6% : an even more dangerous and destabilizing housing price bubble inflation (Wage, food inflation...)
+3% : a wish from Central bankers and politicians and most importantly a survival level for construction builder.
-10%: a soft landing
-30%: a return a natural equilibrium (economical expansion back to normal, income growth anemic)
-40%: a hard landing (economical shock, US in recession followed by Asian or BRICS Recession)

These scenarios will in fact be under the influence of many parameters that are beyond the control of Finnish Politicians and central bankers:

-Bad recession in the US
-Recession in Brazil/Russia/India/China (BRIC, Emerging countries)
-Dollar crashing, Euro strenghtening
-Long term interest rates shooting up (inflation, strikes out of control)

The sky is the limit

housingfinland — Tue, 30 Oct 2007 05:15:17 +0100

The sky is the limit: when will the frenzy stop or when the bubble start to deflate?

Statistic of finland published a report on housing price in the third quarter of 2007 :
"Dwelling transactions remained lively in July to September:

According to preliminary data, prices of dwellings rose during the third quarter of 2007. The prices of dwellings in old blocks of flats rose by an average of 0.7 per cent in the whole country, when compared with the previous quarter. Prices went up by 0.7 per cent in Greater Helsinki and by 0.8 per cent in the rest of Finland. These data derive from the statistics on the prices of dwellings compiled by Statistics Finland on the basis of the Tax Administration's data. Preliminary data comprise roughly two-thirds of the transactions in dwellings in old blocks of flats and in terraced housing."

Prices are usually a lagging indicator of housing market conditions, coming down only after home sales decline and inventories rise. With the latter two trends already clearly established, I might have expected to see more outright price declines by this point rather than simply a moderation of the rate of increase.
I continue to watch this with concern, because the magnitude of the previous run-up in real estate prices suggests that the size of ultimate price declines could be quite bigvas well. If one takes a market fundamentals view of the last five years, the earlier price appreciation would be attributed to falling interest rates, growing population and income, and restricted housing supply.