Sunday, 18 December 2011

On the Housing Trend...

Fitch Warns Nordic Countries Of Potential Crisis Unless Much Is Done To Bring Down Costs
Wednesday, 28 September 2011

Credit rating organisation, Fitch has warned the Nordic countries to put their acts together or face crisis in the nearest future.

In a report, Fitch described the Nordic countries of running an economy characterise by inflated housing prices, high household debt levels and over-sized banks compared to the size of their economies. These are risks in the Nordic countries, including Sweden, according to a new report from credit rating organisation, Fitch.

Among other points, Fitch analysts point that the major banks depend on short-term financing in foreign currency and a level of indebtedness among households that are among the highest in the world.

Countries specifically affected by the report are Sweden, Norway and Denmark as well as Finland which the organisation feels that they are living up to their top rating of AAA. Fitch gives these Nordic countries praised for its well-managed economies.

"Scandinavia has some of the world's most creditworthy states. However, some risk factors remain. It is especially in the housing sector and the market and banking system, "writes Douglas Renwick of Fitch in the report." Source

95% of Finland's mortgage are linked to variable rates, a very high rate compared to any country in Europe, meaning that the historically low level of interest rates has mostly impacted this little nordic country compare to the rest (in France or Germany most mortgage rate are linked to fix rates for the duration of the mortgage).

On another note, I had a discussion with an assistant secretary that was wondering how people could afford those prices, she could not understand. I told she was sane not as the people behind recents reports (Nordea etc...) and that price will go in only one direction and it is down. My arguments were based on the following:
1- interest rates cannot go lower i.e. in the future price will not be supported by lowering interest rates.
2- we are heading toward a recession in the coming year that has the potential to turn into a depression
3- 2012 will see a record number of layoff (many are on the pipeline : Nokia, NSN, and others as highlighted by some media )
4- 2008-2009 saw a record number of temporary layoff, with prospect that production will rampup after the slowdown. Today, temporary layoff seem not to be on the table as prospect are bleak.
5- China (see article), India are slowing down due to inflation threat, housing bubbles and export collapse.

Conclusion to the assistant : if you can wait one year before buying you should. If you find something that match exactly what you want and you can afford it and pay a premium on it (since price are all inflated) then you can take the risk. My last word: just wait another year at least - renting feels safer todays (see also article).
Conclusion to "The Finns": Stop consuming - keep saving - a deflationnary trend is pointing its noise, then invest since thereafter politicians and economist will unleash whatever they can to fight it which will trigger the start of a ravaging are warned.


Andrew said...

The ECB, Norway and Sweden have now all acted to lower short term interest rates.

Given the constant talk of Euro area banks experiencing a shortage of wholesale funding we can expect more cuts and additional bank support, which will include more sovereign bond and covered bond purchases blah blah blah.

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