Friday, 22 August 2008

Sweden Housing...More Overvalued Than The U.S.


"The US is a step ahead. But now, Europe is increasingly vulnerable, which has become apparent for Sweden. This applies to both the economic recession and the financial crisis, as well as in the case of house prices."

"The fall in price in Europe has not gone as far as in the United States. At present, it is in several European countries, including Sweden, where house prices are more overvalued than the U.S., according to an estimate from the International Monetary Fund, IMF."

"The danger of further price decline in housing looks to be, therefore, greater in Europe, even if the correction does not need to be as drastic on all sides. The risks are increasing, however, that the crises in the financial sector as well as to the current economic downturn will be deepen."

"Sweden appears so far to have done better than most euro area countries. A lot of Swedish industrial companies, focusing on global markets, have felt a tailwind. Strong public finances mean that there is space to support the economic situation, mainly through tax cuts, which is lacking in many other places."

"Yet, it will be felt here too with weaker export performance and a depressed domestic economy, where inflation and high interest rates grits out of household purchasing power. A sharp drop in the Swedish house prices would make the situation much more difficult, especially if it is combined with an increase in unemployment
."

Sweden is more analysed than Finland most notably because it has a bigger and stronger economy. I think that the Swedish housing market, throughout history, has been behaving in the same way as the Finnish one.
So the IMF warnings could, somehow be extrapolated to the whole Nordic region and in particular to Finland. In fact the scenario could be worse for Finland as Sweden has its own Central bank, so they can adjust the monetary policy accordingly which Finland is unable to...

5 comments:

Andrew said...

I recall reading last year that appartments in Stockholm were falling quite rapidly. -22% comes to mind.

But it seems that is not the fuller picture

http://www.thelocal.se/9625/20080111/

http://www.thelocal.se/13662/20080813/

Finland might already be ahead of Sweden? As is Denmark,estonia and latvia. Denmark though even while in recession still has many pressures and difficulties finding workers?

I am not sure myself that Finnish property is so particularly over valued but for a certain type of property there is an awful lot of choice and it seems far too much supply in the Near Helsinki region which does not seem to be selling?

But maybe it will need worries over employment to really make large changes is my guess and that seems to be coming nearer and nearer in a way that is not reversable until the credit unwind reaches equilibrium.

Even so Finnish roundwood production is now at a record amount.......whereas a few days or weeks ago there was a crisis? Obviously all of these various tax cuts do make a difference and do equate to interest rate reductions in some manner? So overall the situation here from a news point of view still seems quite mixed?

HousingFinland said...

"Denmark though even while in recession still has many pressures and difficulties finding workers?"

Finland was in the same situation in 1989, with a very low unemployement of 3.9% (remember that 3 years after (1991) unemployement soared to over 20%...).

Denmark...Dansk bank...Sampo...you wonder why did they expand abroad? Danish citizens are the most undebted in Europe thanks to a "dumb" housing policy ...Now, I'm wondering the consequence on Sampo/Dansk/Finland if Denmark goes under...and fall into a depression similar to the one Finland had ...

By looking at asset on a daily or weekly basis you could lose completely the sense of reality...What you should look is the trend but not only in housing as well on the economic and geopolitic front...

Just ask why people were buying in 1989 in Finland...they were not stupid buyer but just lost sense of reality since huge forces (media, psychology, banks) were exercing on them...

When you see Euphoria in the housing market, one should be carefull...since Euphoria period is sooner rather than later followed by panics...I don't think Finland is immune...

Andrew said...

But surely a major factor in the Finnish collapse in the 1990's was the russian default and the collapse of the "East trade"?

Without that how bad would it have been?

HousingFinland said...

"But surely a major factor in the Finnish collapse in the 1990's was the russian default and the collapse of the "East trade"?"

That's wrong... the banking system was over extended, the consumers as well as companies heavely endebted.That's the fundamental reason.

When the global economy collapsed in 1991-1992 (U.S., U.K etc..), company profit started to shrank, the deficit ballooned, the currency weakened and interest rates jumped pushing unemployment higher leading to the finnish banking system to collapse...

I don't say that the Soviet Union collapse didn't have an impact. It had certainly since quite much company might have invested there...

This time, don't look toward Russia, but instead toward the Baltics.

A crisis never originate from the same cause twice, people learn always the wrong lesson. So Finnish company didnt invest so much in Russia (lesson learned from 1990) but invested in "sure" baltics, sure, since they were entering in the European Market---but then there are hics...

The baltics - Estonia, Latvia etc.. are, now, about to enter a recession, or let's depression. They have all the ingredient for that - raging inflation, wage spiraling , loss of competitiveness etc...

Many Finnish company have invested there either as finding customers or by delocalizing...

Should the baltics and nordic region weaken (Sweden and Norway), should the global economy deteriorate (US, UK, EU), should emerging market deteriorate further...then I would not exclude the same scenario.

But i'm hopefull that central bankers have learned the right lesson and are doing the right thing to smoothen the end of the cycle.

Another important point, Finland in 1989 had a big deficit which is different as today it has a small surplus. It didn't have the Euro but it's own currency the Markka, which was not very credible at the time.

But should tax and export deteriorate fast and the Euro currency weaken while interest rates goes higher..then you have the same conditions...

Katainen doesn't see that happen as he thinks that inflation won't be a threat and will lower income tax..that could be a mistake, we will know next year...

Andrew said...

Housing Finland

I guess my feeling at the moment is that if i can keep my cash then i will be in a very good position. I spoke to Nordea this week. I was not so reassured in general but it was interesting to hear from 'the horses mouth' that depositors, "did not lose money at all" instead "yes i agree we asked for borrowers to return their money, but would could we do we are running a business". That is what is going to create the recession. Bit by bit. Bit by bit the borrowed money will go back to the Nordeas. Back to Sweden or wherever it came from.