Wednesday, 2 April 2008

Bank Of Finland 1Q 08: Executive Summary

"Housing investment grew rapidly for several years before declining slightly during the course of 2007.

Indicator data suggests housing investment will remain weak in the first half of 2008.

The forecast for the next few years is for growth in housing investment to be more or less at a standstill, with interest rates and construction costs higher than the average for recent years and a continuing shortage of building land and skilled labour

Are they kidding? shortage of building land??? Mister Housing Minister, where are the land reform you promised. Let's remind that he was warned about it by the OCDE late 2003.
Now on top of the OCDE, Mr Liikanen is indirectly suggesting that you are a little bit incompetent since you badly handle the building permit process in a country where land is not scarce at all. So Wake up and do you home work....

"If future wage demands and companies’ pricing decisions are based on expectations of a continued rapid rise in costs and prices, the level of costs in the domestic economy could gradually rise so high that restoration of the cost-competitivenessof Finnish production will require a long and painful process of adjustment."

a 1990 repeat? a depression recession needed to allow for reforms and readjustment..after all it create a better administration and economical giants...and reduces the greed

"The contraction of the working-age population from 2010 onwards will begin to permanently compromise the general government balance."

This time won't be like 1990's housing recession for a simple reason at that time the baby boomer were reaching the golden age and were still supporting the housing market.

Now they all retire, so they won't be around to kick in and boost the housing market as it did in 1996. I think most probably we are going to have a situation similar to Japan or Germany (hit early by older population) where house price drift slowly but surely lower and lower, never bottoming out. At least it will repeal the speculators . The housing market will normalize in the next 30 years or so losing 40%-60% of its value (drop mainly due to a 2% inflation and no growth or very little)

"This was because of the increase in interest rates and housing prices. In the immediate years ahead, CPI inflation is forecast to slow more quickly than HICP inflation. This is because of a forecast easing in the pace of housing price rises and an assumed gradual reduction in interest rates from their present level."

So Bank of Finland is predicting a slump an ease of the housing market, at least now for house buyer time is on your side, you can choose for quality versus crap cheap one...

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