Friday, 27 July 2012

Exclusivity: Housing Price Will Fall ...

Finnish Housing prices will go down, it is a certainty, but by how much and until when?

Let's try to answer those questions by looking at the behavior between wages and housing prices in the past half century and let's try to envision potential scenario.

The top chart above shows clearly that when the wage line (level) goes above the prices of dwelling lines , a correction is due. The correction is severe when the wage level stays above the house price level for a long period (e.g. 1973-1979, 1989-1993, 2008).

Scenario 1: "Crash Begins"

Wages are sticky, they follow the inflation rates - no wage deflation in sight (Unions will always negotiate wages inline with or higher than inflation). Housing prices will have to decline drastically few consecutive months or year, in order to bring new buyers and make the price rise again (usually pretty fast, when both the economy start to grow and price are relatively cheap).

Also see related link to this scenario: -22%

Scenario 2: "The Dark Night"

At first housing price correct and wages stay sticky, but union power weakens and the industry manage to reduce the rate of wage inflation to even bring it negative. Housing does not grow, or painfully decrease slowly, very slowly year after year ... the housing market go through a long and painful dark period of stagnation with no growth or below inflation for few years.

Scenario 3: "The boring bat"

No comment: Wage and housing price follow the inflation rates which hoover near record low (but not negative)

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