Wednesday, 10 February 2010

Finnish Housing Market: Doom, Doom and Gloom?

"Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding.

We have spent considerable effort in developing the tools we will need to remove policy accommodation, and we are fully confident that at the appropriate time we will be able to do so effectively.", Chairman Ben S. Bernanke on "Federal Reserve's exit strategy" Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. February 10, 2010

I think what is said is of prime importance, especially the following critical words:
- "raising short term rates"
- "at the appropriate time"

This could lead to many potential scenario, which I could quickly highlight without going into much details - Obvioulsy it is based on the fact that the ECB (European Central Banks) mirrors with a lag the behaviour of the US Federal Reserve:

Scenario 1: The economy show futher signs of strengh, it signals an "appropriate time" to remove policy accomodation, the consequence would be to "raise short term rates"
-> the Finnish housing market readjust sharply due to an overwhelming amount of default, linked to the fact that the mortgage market is mainly on short term variable rates, that leads to futher weaknesses in the banking sector that may need governmment rescue.

Scenario 2: It is not an "appropriate time" as the economy shows signs of weaknesses and need to be further supported by an accomodative policy which means that tightening will not occur and "short term interest rates will not be raised"
->The Finnish housing market readjust sharply as the economy deteriorate further amid rising unemployment and plummeting banking profit that ultimately questions the solvability of the entire banking sector which will ultimately require government intervention that could jeopardize its credit ratings.

Scenario 3: The economy neither weaken nor show signs of growth. The "appropriate time" to withdraw stimulus is extended futher in time and "short term interest rates" stays lows in a similar japanese deflationnary scenario of the 1990's
->The Finnish housing market deflate at a snail speed. In real term housing price do not budge but a low inflation slowly but surely reduce its value overtime. Like the air of a bike tire that is left in a cellar for a very long period, it slowly deflates.

Scenario 4: well all in pictures...

Legal note: what is said in this article should not be taken as an advise for any decision you make on any type of investment. It is highly advisable that you do not consult banks but instead use common sense when making a lifetime decision. This article purpose is to trigger a discussion if any, and gather different perspectives. Whatever is said in this article should not be taken seriously and this account for comments too.


Andrew said...

gold about to make a high versus the euro. Nordea reporting pretty solid profits. On the funny side the mortgage bankers association of USA HQ is being sold as a short sale 48% under the price they paid for it!

Anonymous said...

on Nordea...

STOCKHOLM — Nordea Bank AB, the largest banking group in the Nordic region, reported Wednesday a nearly 30 percent drop in fourth-quarter net profit, due mainly to rising costs and loan losses.

The Stockholm-based bank also said that it plans to launch a number of combined growth and cost-cutting initiatives, including plans to outsource some of its IT development to India and move some back-office operations to Poland. The measures will start this year and run until 2012 and are expected to cost around euro240 million ($329 million).

andrew said...


Sorry I seemed to have missed the bit about loan losses when i read only the income part:

Nordea's final-quarter net interest income fell to about 1.30 billion euros from about 1.39 billion in the year-ago period.

small-invester said...

With the euro falling porbably its a good time to invest in metal. Can any body guide me from where we can buy gold in tampere / finland?
Any other secure / reliable way of investing in metal?

Billpete002 said...

There are four typical ways to get metals:

1. Buying the actual metal

2. Buying certificates of the metal

3. Buying stock in a ETF that tracks the metal

4. Buying stock in a mining company

If you just want the physical substance I suggest Apmex as their prices are quite low (considering you are shipping international)

I don't know if Finland offers certificates but there are companies in the US that do - something to Google I suppose

Buying an ETF or Stock is the easiest way to get on the "bandwagon" but the problem is you don't get the actual metal. ETFs are great if you know the metal in question will go up in value - but can be quite volatile, while stocks in mining companies can be more stable than an ETF, but it may not track the price of gold - and is subject to company policies.

Some ideas for stocks - NB! though you should examine them thoroughly prior to investment as due diligence is always required - are GOLD, SLV, and NILSY

If you are able to get your hands on the certificates (and you want the possibility of selling them quickly) this is perhaps the most recommended way to go as they are more liquid than the actual metal (not as much as a stock) and you can trade them in for real metals. I find them also easier for storage purposes than bricks of copper or gold laying around my house...

Billpete002 said...

I suppose the 5th way to get metal is to mine or pan it yourself - and if you live near a river in Finland it's always worth testing to see if you can get some gold - or head up to Lapland for a weekend.

While I haven't heard too many Finns doing that - I have heard some unemployed folks in the US who have gone out to the Rockies to pan for gold and sometimes they get 1-2 oz (if lucky) which is quite a bit of money if you got that in a week or less.

Anonymous said...

Buy metals? Why not buy the real estate if you have that much spare money? Which one can keep more value for you in the continuous currency dilution?

HousingFinland said...

"Buy metals? Why not buy the real estate"

First thanks Billpete for the information concerning ways of investing in materials (e.g. metals).

Second, you don't "buy" real estates, you borrow pretty heavely for almost a third or half of your life (depending on you leverage and life span ;->)

Buying metals, means a way of speculative investment, a way to get a better return that what banks are offering (which is near nothing however better place if we speak of capital preservation in light of risks in almost on investment landscape).

So yes you buy "metal" or its equivalent.

In any case, my view on that is this is not a good time to invest in any assets (be it stock or housing) since the downside risk to investment are greater than the upside...for at least 1-3 years.

Regarding raw materials, there is a serious and highly probable chance that commodities will fall sharply in the months ahead since China/Russia/America (Brazil)/Pacific (the CRAP region) is about to slow or "crash" ? on top of that stimulus has reach it dangerous exnpansion (with the PIIGS giving the alerts see Greece, Spain).

So what to do...nothing. One old wise man, once said to me..."when a bear is near, do no move"...well when you have such big bear market and collapsing world trade (or about to)...not investing is maybe the best thing to do amid a huge deflationnary threat.

sorry...just finnish my expresso...:->

Billpete002 said...

Real estate is a 1 way bet - you are betting that your house/land will (tomorrow) be worth more than today. It's a one way illiquid bet - if the market collapses (again) you're stuck with a house you cannot sell - like many people during the first fall.

It's best just to wait for the market to fall (again) and correct the prices - first rule of investing: buy low, sell high.

If the price of the house hasn't fallen 40-60% (depending on the area) I wouldn't even bother with it.

Remember Greece is a side show compared to US - and what now may seem like an overheating China...

Andrew said...

I dont buy all this stuff about an overheating china being a problem.

China has 5.25% interest rates and 16% bank reserve requirements at the larger banks and 12% at the smaller ones and is said likely to increase these reserve requirements all thru this year. And if the economy slows as it must it can cut those requirements down and even lower interest rates further by a considerable amount

China has considerable ability to make this crisis easier to deal with. Debt equals savings.

Anonymous said...

On China overheating, find a video interview from Roubini, one that has been so far been able to analyse the situation in a rather good level:

Andrew said...

China is different to western economies in that they will implement tighter monetary policy as required and loosen it as required.

As Roubini points out several times in the last decade china had a boom and tightened. Both times they had 'soft landings'

Importantly they seem prepared to tighten as necessary. For example bank reserve requirements of 17.5% a record for china and interest rates of over 7% prior to the lehmans collapse.

In todays situation it seems inappropriate to be worrying about too high growth in china. Too high growth in china helps to rebalance the realities where western jobs are being exported to china.

A more expensive china is what is required.

HousingFinland said...

Want to try the economic (Kan)guru quizz from Bank Of Finland?


Andrew said...

Anybody got any insights into what this is all about?

I have been following detached house inventory for a few years now and since the summer there has been a noticable decline in advertised properties.

But why?

Andrew said...

Too many questions there about miss finland!

HousingFinland said...


You raised an important issues by pointing to this article.

I'll do a bit of research and highlight my perspective on that which are based on the scale of the housing market ...

to be followed...