Tuesday, 6 November 2007

Bank Of Finland 3rd Quarter Bulletin

"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."
Let's put that sentence into context. As I heard this argument coming from some real estate agents and economists. A rise of 6%/year (or more) on a 200.000 euro house is equivalent to 12.000 euro/year which mean a 33% increase on a average 40.000 euro salary /year. So income had not followed this pace and will not. The mismatch will be resolved by either having prices stabilizing for a decade and the income catching up or housing price correcting over the next few years and income rising to a level compatible with price stability...

So if you haven't read my article regarding "the prophet of the past", you should.

1 comment:

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