Friday, 25 July 2008

Finnish May building permit volume plunge 27 pct yr/yr

"In May 2008, building permits were granted for a total of 4.6 million cubic metres, which is a good one-fourth less than one year ago. Cubic volumes went down in all building types. Building permits were granted for a good 3,000 new dwellings, which is 13 per cent less than in May 2007.

In January to May 2008, new building permits were granted for a total of 20.5 million cubic metres, which is 13 per cent less than in the corresponding period of the year before. A good one-fifth fewer building permits were granted for residential as well as business and office construction
." Statistics Finland (SF) said in a statement Friday.

It seems that there are no signs of relief ahead. Housing Permits are a forward looking indicator, most of the time prices correct with a lag and when it starts it takes about 2-4 years for prices to find a bottom.

The point to be made here is that banks real estate business model will change.
When the housing prices boom, banks are willing to lend 100%, with little or weak collateral and very low margin.
In the opposite direction, when house prices start their downward correction , banks lend less, increase their margin and require rock solid collateral.
The consequence of that is a drying up of the housing loan stock, thus the demand collapse while the offer stay put, or even increase which result in a sharp price reduction.

This is a typical scenario after the housing price peak ...


Andrew said...

interest rates creeping higher.

Dont count on mortgage rates falling no matter how bad the economy gets and how low ECB rates go.

Worldwide there is underway an unprecedented distruction in the ability of banks to lend money.

Securitization and its ability to unsell debt has failed. If banks want to lend then they have to have money to lend or rebuild their balance sheets prior to lending, and who will lend to them other than the CB's at low rates which does nothing to improve their lending ability but only maintains the status quo? The illusion of prosperity that created much of what is around us built on debt cannot be continued. The low rates of recent years are a thing of the past.

Wealth built on debt is an illusion that is going to cost dearly and there seems nothing that can change that until fundamental valuations return to the levels of historic norms of affordability and commonsense. For example why are houses here in Finland heated at 23 degrees in every room all thru the year??? Why cant people spend less and just wear some more clothes?? Why do people regard that as normal?? It cannot be normal to imagine that it is normal to have a whole house heated to tropical temperatures when you live in one of the coldest climates on this earth! One way or another this illusion is I believe maintained for many by debt that is assumed to be a normality for them rather than an unreality for them.

Andrew said...

More weak numbers

HousingFinland said...

I totally agree with you that wealth build on unsustainable debt is not only a wrong fundation but can lead to social tension if politics and central bank don't maintain the current way of life/economy. Would that happen?

Just witness the U.S. and the U.K where debt were pushed to the extreme, where politicians and central bankers were not economist but merchants : selling the American Dream...made in China : look real but it's all fake and cheap and destroying on the way the local artisanat, and local economy in order to allow all to live in a world where the materialistic values dominate over the true values.

For some fellow Finnish and Europeean citizens the view of the health of the economy had been very unrealistic, some are counting on massive pay rise to be able to handle deteriorating purchasing power and heavy debt.

Some had never witnessed a real recession, where finding a job is really challenging and require true skills and innovation. Maybe time of challenge will create champion as it has always happened in the past..for the moment the champion are being created in Asia where the new economy and success is pushing billions of citizen to be innovative, creative and lead the next century...

Coming back to Housing, for the next 5-6 years, at best, will be on a decline. YIT is a flagship of the movement, has dive in the HEX more than 50% in the past year...

Politicians are now preparing a fiscal net, cutting tax in order to revigorate the economy or to give oxygen to very undebted "consumers"...what you give on one hand, you take it with another: expect a sharp deterioration in the social wealth...

Andrew said...

we have to be careful when it comes to 'true values'. What are they? Can vikings be vikings? Seems ok for the vikings but the brits and most of nothern europe did not seem to like it. And can the brits be brits? Britain fairly recently sailed into helsinki harbour and sank a few ships and shelled a castle i believe? Can Russians be russians? In the true value world, then Finland was created and allowed to exist as a buffer zone between two warring countries. I noticed that Nordea is the Finnish representative bank for the EONIA panel. A swedish bank?? Just how truelly Finnish is Finland? Maybe via ice hockey the illusion can be maintained? The italians seemed to be great at making food and fantastic art and style when they are not torturing to death none believers and inventing words like mafia.

True values?

And I think the ECB is part of a process to ensure that our true values dont become too visible. They help maintain the dream of a united Europe. A kind of Reich perhaps?