Wednesday, 28 October 2009

Housing Price : Warming Up Exercise

This is my baseline scenario reviewed based on the current interest rates and bank lending behaviour.

I will come back to the housing price trend on the 30 of October, when "Statistics Finland" will publish 3rd quarter dwellings price.

It gives me an opportunity to prepare the ground before the data is released and try to make an analysis to explain the current situation. The economy is in bad shape, there is no doubt about that however the central banks and government have flushed the market with easy credit (historically low interest rates).

This will probably push any asset price even higher and make the current bubble even bigger and quite dangerous. So in order to avert the current financial crisis they have put the seed of an even bigger financial monster.

Having said that, the outcome of my baseline scenario is still valid, but instead the correction could be more severe and more violent on the economy. In fact, price will correct due to the forced exit strategy by central banks that will led them into increasing interest rates to avert twin bubbles as already observed in the stock market and housing market.

The other intersting piece of data that puzzle me is the consumer confidence component "Finland economy in 12 month" which is at record high, even greater than the dot com bubble...

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