Monday, 26 November 2007

Euribor 3 month: "Fear Index"

As everybody should know or must know, a Credit Crisis started in the US in August 2007. It quickly spread to European Markets. In the past month, there was hope that the crisis was losing momentum and the situation was improving. Unfortunately, it's not the case as shown by the 3 month Euribor highlighting the stress in the banking sector and the massive intervention by the ECB to defuse tensions in short-term money markets.

Investors are anxious, Banks are nervous. What does that mean for the housing sector? not good at all. Banks will tighten their credit standard, lend less as they need to have cash reserves to prepare covering up for future losses bound to happen...

What we are witnessing or will see in the coming months (if not years), is a U-turn in the balance between the housing supply and demand. The demand was strong, mainly pushed by banks (offering mortgage at record pace, to anybody who wanted it.), and the supply was above or on an average level. Now, the demand has sharply contracted, vanished overnight and stocks are pilling up, the housing inventory is increasing and sellers still sticking to their price.

Sellers are currently wondering why they can't sell their asset within days, since it was not long ago (6-12 months ago) , any type of housing were sold within a week or two, in some cases even before the visit....
Sellers are waking up to the hard reality: in order to sell they will have to bring the price down, something not seen in that scale since 1996.

5 comments:

Anonymous said...

What is worrisome is the fact the ECB had injected billions of Euro to calm down the situation. Nothing has helped.

Not sure if the ECB is credible. Inflation is above target. Euro is overvalued and the credit crisis amplifying.

Trimmer said...

The central bank predicted that the EU region would be forced to revise down its annual growth prospects due to recent financial market chaos.

Anonymous said...

How exposed are the Finnish banks to the dry-up in credit?

I was talking to someone from the local bank today (one of the small savings banks), and she said that they have more money in deposits than they have made loans. However, she said that some banks "in Turku and Helsinki" were in the situation of having more loans than deposits.

"IslandCrow"

anton said...

Another point that is intriguing is about the Danish bank "Danske Bank Group" that bought Sampo and had establish it as its Finnish branch.

We know how fragile is the danish economy with regards to the housing market and Danish are the most indebted in the Euro area. So if the housing market collapse there, I'm not sure what will happen to the Bank itself and its branch (Sampo) in Finland.

Most probably a tightening of credit standard and search of depositers...

Anton said...

Today, 28.11.2007, the Euribor 3 months is at 4.743%, we are back to the level reached during the peak of the credit crisis...