Wednesday, 3 August 2011

Finnish Construction Sector - A Market View

A picture is worth a thousand words as the old banker wise once said. Above is the construction and engineering sector in Finland. Apparently the market is seeing a sharp slow down, something similar to the summer 2007 where a year after the housing market made a tentative readjustment.

Talking about the readjustment that did not happen in 2008, there are many reasons for that.

1- Interest rates tumble, literally fell in a free fall - helping interest rates sensitive mortgages, which represent above 90% of Finnish mortgages. To that, add also the record length of mortgages provided by bankers.

2-The current crisis (which we have yet to see the end) was a threat to the banks and the financial system as a whole. During that period, real estate was seen as a safeguard - at least money had to be parked somewhere perceived solid. The same was witnessed for Gold, Silver etc...

3-A relative game, North europe is seen as safer than the south in all possible dimensions, hence investment is rolling, fueling , even greater household leverage, that have been pilling up debts, as never witnessed before. to that extend, Banks had never stopped lending...


Nevertheless, the market is saying that the housing sector or construction sector is about to experience "something" not so good. A simple readjustment or an "Iconic Nokia" type readjustment that could bring price toward their 1996 prices. Time will tell.

4 comments:

andrew said...

Low growth in the stronger countries just means lower interest rates and QE or whatever it takes to make the deflationary scenario very unlikely

Balmat said...

Well the difference this time is that the stronger countries (Germany, France and ... well very small strong economies ...) won t be able to increase their debt level ... therefore I doubt that they will be able to do something ... their hands are tight by the market.

Regarding Finland, Nokia is unfortunately finished, the paper industry not super good either and will suffer from the next recession (less advertising so less publishing ... therefore lower need of high value papers etc ...)
So Finland will soon loose its strong economy status and will not be able to do that much ...

Since we are talking of countries, soon shall be seen as being several Quarters and/or few years ...

Let s see ....

I have not seen the exposure of Nordic banks to the PIGS debt ... did you have a look?

---------------------------
To conclude, great analysis as always ... how does the volume of new loan issuance look like in Finland (sharp decrease)? also what about the debt level of household (increase)? Have we seen an increase of defaults on credit cards debts (increase)?
If these indicators go to the wrong direction (north for the two last ones), Finland will head to major problems and the housing market will suffer ...

HousingFinland said...

"The lobby’s construction outlook indicator plunged to +9 points from +24 in April, with a services indicator of +11 points, down from +20."

http://newsroom.finland.fi/public/default.aspx?app=803&newsid=30504


Indeed, give it another 6-12 month, and the confirmation of a multi-generation top will be finally reached as always been foreseen in this blog. The time of high leverage has come to an end, time that started in the beginning of the 80's, a 3 decades debt binge.

Balmat, I will make an update on loan, debt growth pretty soon, as it is a good indicator to predict where the market is heading.

Andrew, regarding your statement, indeed I would agree, if we were in the UK, US, Sweden or Norway. But we are in Europe- and the Euro is in danger.

Balmat said...

@ HousingFinland
There is a clear deceleration in the economy for the sceond quarter in the rest of Europe as well - France will most likely have a lower growth in the second quarter with a unemployment rate increase ...
Let s see how Germany will weather the storm?
I was surprised by the decision of the Swiss National Bank (actually the only pure private central bank) to decrease the interest rate ... that was useless ...