Wednesday, 17 June 2009
The Truth About Current Finnish Housing Market State
Yesterday, randomly I was head to head with huoneistokeskus and various real estate high representatives talking UP the housing market...Well when I say head to head, there was separation between us : my TV screen...indeed they were parading in the YLE channel - as usual.
So for them it's back to normal..."ouch" I thought - when I heard that (well after a real time translation, as I asked total freeze in the room and requested a detailed transcription from Finnish to any other easy-to-learn language i.e English, Sami)
So after this "ouch", the few neurones I have still left hinted me (quite few were hit badly by the changing weather in Finland - from +30 degres celcius to +2 in about 2 days) that I should show the lastest hard data about what's going on in the Finnish real estate market.
So here we are...and as a hard fact, you can see, on top, this table that shows you clearly the downward trend on the loan growth. (here is the source if you are willing to dig into the details : BOF)
So loan stock growth is plummeting following sharp drop on interest rates (from a high during the peak of the bubble in 2005-2007 to now, the growth rate has been divided by 2). Less and less people are willing to buy since the music has stopped playing and house price has started their downward trend. What is important is the dynamic or the trend since it tells about what could happen in the medium term...
Conclusion, the market is not recovering and as I said do not expect it to recover until :
1- the unemployment situation stabilizes - so until at least later in 2010
2- well after the economy recovers which is far from being the case - maybe after 2011 - I say maybe because there are worse alternatives.
3- Housing permits grow again, which is currently not the case and actually has corrected quite sharply.
4- After a further price depreciation of at least 20-40% in the next 2-4 years
This table show another interesting point, the relation between interest rates and housing loan growth (and price) - usually it's pretty uncorrelated. In fact House price grows when the economy has well recovered and is growing but it usually drops when interest rates are falling or are very low levels (the reason being that interest rates stays depressed as long as the economy is).
Now do not be fooled by those kind of media circus - people will always advise wrongly at market top - the same happen in the stock market where the target is the public and the beneficiaries are the institutionals and banks. Unfortunately people keep on falling in those kind of traps - maybe people have short memory but in todays internet capabilities it's unforgiveable.