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...


Anonymous said...

You should add to your article the Finland Industrial Production chart

See below

We are indeed heading to a pic ...

HousingFinland said...

thanks Eric,

Very interesting chart and site.

I will follow that next year. The only problem with this chart, is that there is some base effect - last year the trade and GDP were collapsing, hence if you compare year on year data, you give the impression that you have flattering growth and you see economist gloss around (i.e. PTT) like turkey to find out pretty soon that it all but an illusion...

Nevertheless it shows that from 2009 that volatility has increased and that we had a record drop (of course, one has to take into account that the forest industry took the opportunity to restructure itself, while the construction sector went into a standstill until the government gave "carte blanche")

Andrew said...


Interesting site.

Supposedly places like Turku are mainly impacted by the crisis, which this graph might better show?

Maybe somebody has access to the regional figures?

Anonymous said...

Another to be followed as part of the discussion ... ok it is in the US but the situation is roughly the same in Europe ...

Anonymous said...

A comment to Eric.

If you can repay you "debt" with an "I Owe You" note made by yourself. The best way to get even richer is to borrow more. It has been the trick of US and major EU countries for decades.

Face the reality and, it may answer some of the puzzles.

HousingFinland said...

"It has been the trick of US and major EU countries for decades."

humm ... lehman incident was the turning point. so past and future can only miror. :->

Mickey said...

We might definitely be living a pivotal period.
Real Estate developers (RED) new bulding program number of available apartments (Uudiskohdeet) is almost frozen.

Number of apartments available since I've been following the market from second quarter of 2010 is now hardly decreasing.
There is also a specific offer and demand law just between RED and the private consumer.
If this situation lasts until several programs stay empty or partially empty when delivered, RED might encounter the downturn they want to avoid.
And they will logically try to avoid at all cost the announcement of discounts, which will be the trigger for a change in the relationship between RED and all potential buyers.

HousingFinland said...


Where do you get those values or chart? Do you have any web site address?

Mickey said...

You won't find such statistics! I think it would be too simple.
But I've been monitoring a dozen of programs in the Greater Helsinki where no or almost no apartments have been sold since 4 months.
They tilt from the varattu to the vapaa to varattu to the vapaa every now and then but few disappear from the selling list.

But that maybe tells nothing, I don't what kind of trend the market follows in Finland. Possibly the summer period is calm compared to the rest of the year.

Anonymous said...

@ Mickey
Really interesting ... we should be able to track the unsold items from the quarterly results of the developers. Their "inventories" should be stable and/or increase if new tranches are delivered without being sold ...

I am wondering if it did not start like this in Spain, but we cannot compare Spain to Finland though ...

Andrew said...

I wonder who we can compare Ireland to? At least with Iceland they had all of the foreign loan assets for loans in places like the nordic region and Canada and so forth and can expect good recovery on that and more or less all they needed was bridging finance. Ireland just seems doomed to default.

Anonymous said...

One the subject of household debt in Finland:

"Nearly a quarter of a million people in Finland faced recovery proceedings for debts at the end of 2009. According to Statistics Finland, the number had grown by nearly 11,000 people since 2008.

The average debt being sought by collectors was around 16,000 euros.

Altogether collection agencies were seeking to recover nearly four billion euros in debt - not including interest."


That is 5% of the population... probably about 10% of working aged people, so that should be a hugh drag on the housing market (at least at some time).


Andrew said...

"the Ministry of Justice says that 269,000 individuals were involved in recovery proceedings for debts at the end of August this year."

That seems huge!

How many people even have debts in Finland???

Surely that is not right??

Anonymous said...


There is a quite new information about debts and how many people have debts in Finland.

"Debts increased by 5% in 2009"

So, here is the main point:
"Velallisia asuntokuntia oli 1,5 miljoonaa". 1,5M households had debts (in the end of 2009).

If there are really 269000 individuals with debt problems, it is almost 18% from the household numbers. It is a lot, even we can say - far too much.

Andrew said...

if so many are involved in recovery procedures there must be many more who are in debt counselling and special arrangements with the banks due to their circumstances that the banks are 'supporting them thru'

Billpete002 said...

sorta building the case for a crash in the housing market it would seem..

Andrew said...

We need more information.

Certainly i did not expect house price rises like some are saying have happened. I was only looking to protect my life savings in something tangible i control.

But it seems likely the ECB is going to extend the exceptional period of support to the banks so they can maintain their inflation target and homeowners are likely to continue to get low rates for maybe years to come, unless inflation picks up which then makes it sort of zero sum anyway for many owners.

Andrew said...

Euro crisis trundles on....

Finnish furniture retailers said to be bleeding cash in advertising while only IKEA is doing OK. We are for example shopping occasionally at IKEA but finding the rest too expensive when we can get pretty good tables and chairs from the charity shops for 30 or 50 Euros.

Andrew said...

If anybody is interested, a guy i have known for a while on the internet has created an unmoderated forum to discuss this crisis.

That is my post to that forum.

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