Wednesday, 30 January 2008

Finnish Housing Market : "The Age Of Turbulence"

(click on picture for zoom)

So today the "Statistics Department" has carefully laid the latest news on House prices.
They reported a sharp slowdown in the last quarter (0.4% ).
After 16 years of continuous growth, the historical housing "bull" is coming to an end and can turn into an historical housing "slump".

I can quite easily assure you that we have reached a peak,the question is not about if we are going to have a soft or hard landing but instead how hard the hard landing will be .

A soft landing requires a 30-40 % drop :
- current prices contains future price appreciation. This is unrealistic and need to be discounted. That's amount to 10%-20%.
-Private, real estate agency and media speculation have driven prices up in the range of 10% to 20%
-The Psychology has changed, owning house become equivalent of owner renter as the renter becomes the bank since the mortgage length has shifted to 30 or more years, strategy that was put in place to bring back artificially the affordability lower and create massive amount of mortgages.
-The global economy is slowing, not only in the US, but Europe is about to confront massive issues in Spain, UK, Ireland and Eastern Europe and it is facing a bigger threat then the U.S. . This is implying a very difficult 2009-2010 for the economy.

A hard landing scenario will imply 50-60% (or more) price drop:
-U.S. enters into a recession, worse than 1990 and 2001. It brings China and India into a recession (what we will call "The Great Chindia" recession). Political and economical situation weaken considerably and vulnerability rises sharply. We enter into an age of turbulence. Protectionism, social disturbance and poverty is on a sharp rise in the developed world.

-Inflation is raging, interest rate on a sharp increase will make having debt a big burden. Rent price is plummeting as unemployment is increasing. At the same time the population is getting older and the country sluggish productivity bring what we will call the "Japanese" or "German" syndrome : real estate falling for an indefinite period of time , and renting becoming more popular as ever.

A very (;->) hard landing scenario will imply 70-90% (or more) price drop:
Obama become president in 2009. An assassination on him bring month of turbulences as the U.S. is in the brink of a civil war.

Inflation is raging in Europe and right movements are on the rise. Political stability jeopardized, brings the economy into a depression.

Gold prise rise to levels not seen in generations. Paper money lose its credibility. Country after Country in Europe gain back their independence. The European Union is dismantled, stars after stars...

Disclaimer: This story or prediction is purely fictitious and any resemblance to any events, person living or dead is purely coincidental.

related : Prophet of the past , Previous Analysis

8 comments:

Jules said...

Who are you? What expertise do you possess to comment on this market?

Anonymous said...

Thanks, that looks so realistic ;->, let's just hope that price don't hav to fall to that extent..cheers

Anonymous said...

I want to fight the figures you gave...they are so huge! But I know that the crash in the early 1990s saw price drops of over 50% in the area I was living in. This was a suburb, and I think that it was harder hit than the city centre.

However for me, the graph would be more useful in assessing a likely price collapse if there could be a line for inflation. The graph would still be bad but maybe not quite as bad as it seems now.

IslandCrow

HousingFinland said...

To IslandCrow, I agree with you but instead I would rather put wage adjusted to inflation. In the 90's the inflation was high, and so was the wage growth. At that time people could afford a 15-20 years mortgage... And indeed some area will see huge price drop, no doubt about it...

To Jules: Who can have any expertise on predicting any markets?. There are so many local and global variables, it will be foolish to give credit to any expert that will tell what will happen to the housing market price. Please read the disclaimer too.... Regarding the price the scenario presented, it can come true if the global situation deteriorate rapidly. Now who knows about the future? refer to the link I added regarding the "Prophet of the past"

To Anonymous, it shows you that taking high leverage is not a good idea in todays environment...just keep your purchase reasonable and mortgage payment should not go further than 30%...

Anonymous said...

I would expect that in your hard landing scenario that the increase in renters (increased demand) would create a better business case for property owners who are putting their properties out for rent to achieve better returns on their investments. While there is still a housing shortage, as seems to be the case in Finland for smaller size apartments, and if housing ownership is out of the question due to high interest, then the only option is for rent to increase to cope with demand. I can imagine that some of the large European or Finnish property investment firms will snap up the cheap apartments and force their own business case through driving rental price. The outcome of this would be that housing ownership once again becomes more attractive at that time, whch would result in again driving housing prices up :-(

Worried said...

article here in finnish financial paper which you can translate via google translator confirming what is being talked about on this blog.

http://www.taloussanomat.fi/asuminen/2008/06/22/kiinteistovalittajia-uhkaa-pudotuspeli/200816506/139

Prices seem to have peaked in November and article goes onto suggest agents running out of business with few sales are now likely to play a dropping game to keep buisiness flowing and keep incomes - with many closing down. Comments also very interesting suggesting few disagree with the gloomy scenario.

I have noticed advertised prices for houses being lowered here and there but so far not noticed a large increase in number of houses for sale in the helsinki area.

And generally the Finnish economy is not doing so badly or so it appears in the southern region. Finland might do well if the BRICS hold up. But argueably China and India are on the edge of something big already. China for example removed oil subsidies resulting in an over night 18% increase in petrol overnight last week and India is also faced with huge difficulities with Oil. Apparently Vietnam has given up too attempting to control oil prices resulting in massive useage changes and difficulties.

Russia of course seems to have piles of money for fancy summer villas in Finland. Equally if prices start falling they could be gone overnight - which you could imagine would have an implosion effect just like the 1990's as presumably Russians have got a sizeable investment here and there in the Southern region.

I never know what to think of all of this stuff and the commentary but you cant help thinking that critical mass is being reached for the psychology of fear needed for a major correction

Worried said...

just to back up those vietnam and india comments

http://www.overseaspropertymall.com/regions/south-east-asia-property/vietnam-property/vietnam-housing-market-another-one-to-bite-the-dust/

http://economictimes.indiatimes.com/Real_estate_sector_facing_severe_cash_crunch/rssarticleshow/3130151.cms

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