Saturday, 28 January 2012

Prices of dwellings fell in December

Development of prices of old dwellings by month, index 2010=100

Development of prices of old dwellings, index 2005=100

Source: Statistics Finland

What is important is to see if a downward trend has really started. In all cases the upward trend has been broken as it did during 2009 in the midst of the financial crisis. Wait and see...

So the ECB averted a serious credit crunch in the last quarter of 2011. Again, is it just delaying the inevitable? In the meantime, Euribor is falling, again providing some oxygen in the housing market, but for how long ? (2014 as suggested by the Federal reserve, the American ECB)?

Coming back to the Finnish housing market - we will see a readjustment in prices at least due to sellers coming back to reality and understanding that the demand is shrinking while first time buyers are priced out.

Another interesting chart, is the wage versus housing price which shows you a disconnect in 2010. That tells to me, that we will have at least 2 quarters of readjustment - if wages stay stables which is not fully granted...
Year-on-year changes in prices of dwellings and in wages and salaries

Note, also that prices have kept going up since 1993 with minor correction along the way. Also Since 1974, percentage change in Wages have been declining. The only time we did not have any growth was in 1992 and 1998...are you going to see the same phenomenon or worse a new one: wage deflation?

Saturday, 21 January 2012

Finnish Household Debt and Income: Alarming Signals

Rates of indebtedness of indebted household-dwelling units by age group 2002-2010, %,

The chart above was extracted from a nice article from Statistics Finland. The article start with a sentence that put the tone on a very important subject: indebted household due to large housing mortgage.

"During a decade, household-dwelling units’ debts have gone up by clearly more than their income."

Also, you will notice that the debt level among the 30-39 years old is at an alarming level and has been rising steadily without any disruption since at least 2000 - the 2008 crisis had only a minor impact, just slowing the progress, not stopping it.

What to think? well clearly we at unsustainable level where any shock could weaken the financial situation of household - especially those who are counting on an ever increasing housing price or on low interest rates.