"The European housing cycle lags the U.S. cycle by about 2 years but the extent of house price increases, as well as the extent of over-construction, exceeds the U.S. experience in many countries.
Starting from the mid-1990s, house prices in the UK, Spain, Ireland, Scandinavia and France exceeded the price increase in the U.S. whereas construction as a percent of GDP expanded to unsustainable levels, especially in Spain and Ireland.
This severe construction overhang in the latter countries will take several years to unwind thus retarding a return to balanced growth as suggested by the strong housing-consumption correlation in these countries.
Recent research by Citigroup foresees price drops of 10% to 15% by 2010 and 20% to 30% over the next 4 to 5 years."
To be honest I am astonished by the way the press has been covering the housing market as of late...I suppose they are still trying to trap the last soul amid multi-generation low interest rates.
On the other hand, the Construction Builders are not fool and have sharply reduce their ambition and have put a brake in their future construction plan (building permits plummeting).
On the opposite, the bankers, high in the sky, are still looking to hit their next target.
The Banker latest news reported or let's say propagated by YLE is as follow :
"Bank economists surveyed by YLE do not expect any major changes one way or the other over the next few months. Most predict that rates will remain low for the rest of 2009, beginning to rise again after the turn of the year"
Raising rates beginning of 2010...that's astonishingly surprising and worrying as it reflect a lot of non sense - either they are lying or they clearly have no clue of what is currently happening, amazing in fact ...that could clearly explain the short sighted banker views that have not only seen anything coming and will most probably see nothing coming too.
Interest rates will probably stay low for at least 2 years as there won't be any inflation threat for at least for the next 2-3 years since private and public debt have reach historical levels both in industrial world and emerging markets. As a matter of fact, this year and next central bankers will be fighting against the deflationnary threat.
So I read this piece of news as a last trick from bankers to cheat again consumers and trapping them in a massive lifetime debt burden as they did during the dot.com bubble, as they did from 2006 by allowing people to take debt they should not have been eligible in the first place and for assets that were grossly overvalued.
Nethertheless, this blog is all about warning people about this type of statement clearly misleading the public and warmly echoed by newspapers and online channels that have clearly self interests in doing so...it is sad, but it is the true reality.
All in all when a storm is hitting and thunder striking (the current crisis that will probably finish in 2011, obviously this is the optimistic view), it is better to be patient while the dust settle (the onset of the crisis)...