Monday, 6 September 2010

Housing Price Monitor - 2011 Historical Turn?

The blog started in Q4 2007 to warn that we were entering in a "turbulent" period from an economical, political and social perspective.

After the year that followed , we saw the stock market halving in value while housing corrected but gained even more momentum.

The housing market benefited indirectly to measure that was aiming at stabilizing the economy- call it a "collateral damage". Around the world, in the past three years, fiscal and monetary stimulus were enacted, reversing or stabilizing a synchronized world wide fall in trade and consumption.

The Finnish housing market is now showing all the characteristics of a very severe housing bubble that mainly inflated due to :

- various government stimulus , designed to support employment in the construction sector
- Finland interest rates are controlled by the ECB that has its monetary policy designed to support Germany, France, and the southern countries (Greece, Spain, Portugal ...) that are at the hedge of defaulting on their unsustainable debt.
- land control -cartel like- from municipalities
- bank model on assessing credit risk and fuelling an unprecedented housing loan growth)
- bank granting only variable rates based mortgage (98% of all mortgage originated) and the fact that the government is still guaranteeing 30 % of those mortgage.

I have added on the right menu, a housing price monitor that I will start to update from the 4th quarter of 2010, since I'm calling a sharp reversal into 2011-12. I will use the 4th quarter as the base from price coming from statistics Finland.

Why do I think that a turn is now settling and probably sure to happen. Here are some arguments:

1- An unsustainable Household debt that has shown that when the growth reverse, the trend carries for many years to come based on the fact we had a biggest run-up in credit growth than even the 90's or 80's.

2- Consumer confidence at all time high. Consumer Sentiment has always suggested a sharp reversal when a peak is reached.

Note: This article will be updated as it is a first draft but I though it was better to share so to update it depending on the comments...