Finnish and EU housing Market, Affordability, NonSenSe and Sex

This chart published in the ECB monthly bulletin shows clearly, as stated in early article, that the peak of the housing price was sometime in late 2005. At about the same time the ECB started to increase interest rates , house prices growth started to moderate.

Obviously there are disparities, for example Germany has not witnessed any growth at all , we could even talk about housing price decline. In the opposite, Ireland, Spain, UK, France and Belgium has seen double digits growth.

Finland has shown a single digit growth in the past few years, believe it or not. Those figures are calculated on prices for the whole country thus distorting the reality. As people might not know, the economical situation of the Lapland area, and east side of Finland is not in a great shape. The reality is that in the greater Helsinki area and in big cities , prices have grown in a double digit level in the same way as UK, Spain or France.

But the housing market in Finland is different to France, UK or Ireland but in fact tend to be more similar to Spain. Why? because housing loans granted by banks in Finland has been in 98% of the case settle on variable rates based on a 12 month Euribor...

Variable rate mortgage is a great tool for bankers to bring affordability down when interest rates are unusually low. This has happened during the 2002-2005 period. Now most household have seen their mortgage payment almost double.

That's clear that housing affordability has plummeted from year 2000 as housing price have kept on rising and interest rates came back to their more natural level.

According to the ECB the "Crude" affordability is at a decade low. The "crude" index is the ratio of households’ nominal disposable income to the residential property price index.

So the "interest rate adjusted" affordability has been mainly pushed higher in 2002-2005 due to low interest rates but since then plummeted to reach as well a decade low.

So affordability is at a decade low, can this situation persists? This blogs is all about that to denounce this situation and warn potential buyers to be cautious as we are on thin ice here. The housing market is vulnerable to any unforeseen shock albeit political, or economical ones.

Then there is this irrational supply of housing flooding everyday the net. Sellers taking buyer for dumb, and first time buyers behaving in an irrational way (by buying!) due to stress or social pressure. Here are some examples:

"A 'dilapidated' shed sandwiched between two large houses in an upmarket seaside resort in north Wales is up for sale with a price tag of £150,000. (198.000 €) " . Thanks to "IslandCrow" for the source.

or this one from Finland, a house from 1950 that is on sale for 295.000 €:

(click on the picture to see it bigger)

House being sold by incompetent real estate agency Kiinteistomaailma, the source is from oikotie. You can as well see from the second picture, the same house being shot in different angle and with different prices. The second one with a staggering 525.000€ for a faltering house: source.

Or worse in France, (thanks for Anton for the source), there is currently a scandal regarding student affordability, here we are not only talking of buying issues but as well renting as both become out of reach. Some students even prefer to study in different field that they originally wished for because they need to stay and live in their parent house thus chose a university that is not far from it.

Most dramatic some landlord are proposing low or free rent on exchange of services (read that as sex services.)