Wednesday, 17 December 2008

PTT- 15% Drop, Only?


"Pellervo Economic Research Institute (PTT), Finnish thinktank, said in a statement Wednesday it saw inflation-adjusted house and flat prices falling by 15 per cent in 2009-11."

1-Speculative pricing - 10%

I think PTT, the economic research group has been and is disconnected from reality. 15%, is something that has already occurred on the ground in the past month. 10% could quite easily represent the growth rate sellers were pricing in the value of their "Home "Sour" Home" value - which you could call speculative pricing.

2-The third encounter

When price fall, usually they get a sharp disconnect with the trend and usually break their natural equilibrium. What is a natural equilibrium? is when there is a balance between demand and supply. Supply is on free fall to adjust to an "overnight", UFO type disappearance of the demand. Fox looking-Buyers are searching sellers looking-rabbits running away from the supply. -Carrot needed here- Maybe Fox-Buyer were smart at some point...but the wind is turning...The British, prince led, Fox hunting has started...

3-What do I do?

Duck... you are most probably going to get lots of information that will distort the reality. News - newspaper and TV news - are only good at distorting the reality according to certain criteria that are either political, religious, racial or editor-owner self oriented . So I will advise you to reduce your exposure to such media. Your existence will be better off, believe me(not polluted by those type of coverage that anyway doesn't improve your quality of life, on the contrary...).

Coming back to Housing, indeed you will get report that price will fall by 10-20%, in the same way they said that in 1990 that house price will not fall, to only fall 40-50% in the following years.

Personally, I limit myself into looking news only in a very seldom way- i.e I watch BBCWorld every 9 years, and reducing my exposure to YLE and HS as they clearly distort the reality, or lets say they present it in such way that you think there is no other alternative.

Instead ,I look at data oriented source of information : Statistics Finland, People, Government web sites, STT newsroom - at they are governed by rules that are promoting transparency, accuracy and integrity. Or at least they are making the effort to converge toward it.

4- Bottom line

There is no bottom in sight for a housing hard landing that will start next year. At the end it depends on how the economy develop or simply put, how much it will contract. This time you have a massive retirement issues combined with a slump in the global economy and a frightening Baltic economical development.

5- Bush- shoe-Irak

Now some might understand why the U.S. invaded Irak (pronounced eye-rac). As you all know, US got out from the 1930's depression, not because of the new deal, but simply because the second world war started and provided a massive export market and kicked in the engine. Today Irak could help, let's say in 5 years, to restart the U.S. engine as there is no chance of war in the "old continent"- the reason, the continent is old and german-french relationship at historical high - obviously the Europe foundation is helping here.

The shoe? see the first word in paragraph 3.

6- nothing
7- nothing
8- nothing

9- 1996

The housing price could revisited price set in 1996, in the worse (or normal?) case scenario. What is the worse case scenario? ask your collegue...he must have switch on TV news recently....

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