Friday, 12 September 2008

Housing: The Beginning of The Beginning?

"In the Helsinki region, prices fell by 2.8% during the second quarter of this year. Elsewhere in the country, prices were up by 1.9% over the same period of 2007.

The halt to the upswing in prices came quickly. Last year prices of single-family dwellings shot up by 6.4%. In the capital area, the reversal was even more dramatic. Prices there rose by 12.7% last year.

Nationwide, the average price per square metre for a single-family dwelling during the second quarter of this year was 1348 euros and in the Helsinki region, 2394 euros. Compared to the first three months of the year, the prices of lots for new houses were down nationwide by 5.8%

I understand why politicians, media, policy makers and banks have tried to reassure the market and citizens that no "bubble" or excess were to be seen, and argued that prices won't readjust. I hear again Erkki liikanen, Bank of Finland Governor, saying last year, that price will still grow by 3%. I didn't believe that...

In fact, what they are targetting is an orderly market correction, not a panic...They still want people to buy and support the market (but who will support the late buyers?). They still don't want the market to freeze, but why big construction builders have already cut the amount of housing to be build?
So they still want people to consume, the same way they did in the past 5 years- in euphoric behaviour - (but at what price? heavy debt burden?).

Today, it's different. The economy need structural change and got to move from a consumption economy to an export led economy... The transition will happen and could be painfull.


Anonymous said...

I am really confused why you are creating panic to the people at large, unintentionally, targeting English speaking home buyers. Your attempt to earn attention might frighten potential home buyers or investors. And it will create a vicious circle of frustration in the economic activities in Finland. I hope you will consider more responsible scientifically sound analysis for your articles. I read your all articles regularly and please take my comments as impartial and sincere from a reader.

HousingFinland said...

Thanks anonymous for you sincere comment.

I'm just picking article from the press, usually reliable sources such "Bank of Finland", "statistic Finland", "ECB web site", and some good economic site such as "Bloomberg" etc...

I try not to rely on Helsinginsanomat, kauppalehti and other such news papers that have a clear conflict of interest, thus not highlightng some serious issues.

I started to create this blog because I saw a lot of people being dragged into heavy debt usually pushed by friendly banks (which only goal is to make money, nothing else.)

Now, what moves market are much bigger forces that what you are describing.

I have said many time to people that they should have they own judgement, at the end it's their life that are at stakes and do lot of research.

I do certainly believe that we are going to see a correction in the year to come. This correction could be much more dramatic if certain event happen (such as a sudden rise in oil price, wage negotiation failing, a further deterioration of Russia Economical situation).

So to my opinion, when such economical climate is so distressed, I'm warning people to be very carefull before engaging into heavy debt at a time when all the other big business are delevering (getting out of debt).

I'm frightening nobody, and if one is fritghened maybe he will make more research and make some risk analysis on whether he can purchase currently inflated house price. People have to understand the impact that such a decision can have on their daily life...

To conclude, this blog is open and based on real facts.You are free to give counter arguments, I will not tell you how to comment, you are totally free of your opinion. Please be constructive and express yourself instead of trying to only see one side of the equation...

Last point, buyers and investors are much smarter than you think..

Anonymous said...

Dear Housingfinland

Thank you for your answer. I appreciate it. As I told before, I read the blog regularly because you have the "writing" capability. You can use this power to inform readers why it is important to buy home, in appropriate time as at the end this is a real asset where we can utlise our money day by day in real terms.

Putting money in the bank, on the other hand, just give us false happiness of being rich.

You can also consider advising people where to invest at this moment.

Once again, thanks for the answer and use your writing power to help people- not just discouraging people to buy home- but, in addition, advise them where to invest as well.

All the best.

andrew said...


I agree that it is not in the interest of our society that the people at large are worried into making decisions that unbalance the housing market or that they are scared to act in an unwarranted manner that disrupts the ability of other people to get scared investors money.

We can argue though that 'the people' in the market are 'the market' and therefore it is natural to be informed of the market since we exist in and are part of this market.

However we dont have free markets. Instead we have government and banks as insiders who make descisions that alter the lives of the people. Banks as insiders with access to market information told me some months ago that prices peaked in November 2007 and some properties are remaining on the market a long time and prices are weakening. So that is also a scientificly available fact which is now published for the people to read about. This information was available to the market if the market knows where to find the information. Meanwhile the information read by the people effectively hides this information.

So we have those scientific facts.

Another scientific fact that is available to market participants is that financial market conditions are the worst they have been in generations leading the ECB to engage in exstraordinary policy actions to support Bank lending - something you dont read much about or hear on the news.

From a scientific technical point of view interest rates have been exstraordinarily low for a long time now. But this has not been something that has been so clearly communicated in the market - indeed efforts have been made by responsible authorities to hide the true higher rate of inflation by various scientifically created adjustments so that the easily observable published interest rates dont reveal their true low nature and are impossible to understand without a training in science and analysis.

And it is then debatable whether lack of market knowledge by all participants has created the current boom in house prices which the currently scientifically observable financial crisis is now going to impact upon.

HousingFinland does seem to have some vested interest in prices falling. Or at least we can say he seems to want to see that happen.

On the other hand there are a variety of Governments and banks who have a vested interest in keep prices high even though the scientifically available facts suggest that prices will fall or are falling anyway, simply because we are in the worst financial crisis in living memory.

If prices fall then market participants who are not entering the market with eyes open will be buying at clearly 'top of the market prices' and it would be irresponsible of friends and family and well wishers to encourage them to take on big debts now.

Banks though are not working for us but rather the profits of their shareholders. They are a buisiness that *we* want them to be successful at continuing in.

Nordia informed me that in the 1990's they recalled loans to protect their own buisiness interests.

As a despositor with Nordea i was delighted to see that Nordea puts the depositors interests and the owners interests ahead of the borrowers interests.

So a sound analysis takes into consideration all of these factors.

To find all of the details we need to listen to the Banks and the governments and the central banks and the HousingFinlands to arrive at a sound scientific viewpoint. If housing Finland is wrong as you are suggesting we should be able to go find the evidence and bring that back to challenge his assumptions.

None of us are impartial and all of us are constantly learning.

HousingFinland said...

Hi Anonymous II,

Thanks for the clear and interesting views you have.

So I couldn't agree more with you.

In that sense, I try to find reliable and important information that I feel people should know about it.

Although, I disagree with the comment you made:
"HousingFinland does seem to have some vested interest in prices falling. Or at least we can say he seems to want to see that happen."

Here you are wrong - at least suddenly your judgment get non scientifical- I'm just highlighting the risks, it is true sometime I put it in a melo dramatic coating, to make it more enjoyable to read. Who like to read statistics?

I clearly said that this blog was all about informing people about housing and the economical situation- sometime in a sarcastic way - as well as about highlighting the risks, probable risks, that the housing market could correct, risks that the economy could deteriorate further.

I didn't have to talk to banks to notice that euphoria was taking hold in 2006.

You didn't have to be a genius either to know that interest rates were far too low and were artificially skyrocketting affordability. To that you were adding the fact that banks were competing between each other to provide historical low margin amid a deteriorating standard to attract as much buyer as possible.

At that time, I was hearing Finnish economists, talking about structural change- the same type of people that said about the technology bubble, that it was the "new Economy"- people were seeing interest rates low for decades to come, thus justifying a readjustement upward of housing price- they got it wrong - underestimated the commodity side of it, as well as the speed of wage catching up in emerging economies.

But let's not be blind or arrogant, no one has a crystal ball, no one is sure about how the economy will be in 2-3 years time, too many parameters, and uncertainties around.

It doesn't necessarly mean that you cannot guess the trend or evaluate the risks.

Lately, data have shown that the European economy is slowing and fast. One way to see it is through the falling Euro.

The dollar is getting stronger is as well another face of the uncertain and increasing global economical risks. American are repatriating fund, people are parking their money in the safest investments (Treasuries) and most of it, banks are delevering- starting to sell assets all around the world(stock, hard assets, etc...).

So why people should put themselves on high debt, amid such high ecoomical risks, for the next three decades while smart investors are all in cash and delevering?

BUT I do not want to interfere, neither advise people on what to do with their investment - they are free to do what's best for them- I could only recommend them to assess their financial situation very well, simulate any possible risks and assess wheteher or not they can handle the stress.

Although I had warned to get out from property related stocks (YIT, Ramirent etc...) as well as getting out of Nordea CDO fund back in last august. Beginning of this year saying to get out of emerging markets as the decoupling theory was a non sense.

But one has to remember that Stock market correction is fast, and so is the recovery. Something different with real estate asset, it takes as many year to inflate, if not much to deflate.