Interest rates, especially the 12 month Euribor (for which 98% of the Finnish population have locked their housing mortgage rate), have gone down from a high of 5% beginning of the decade to reach almost the zero level in 2012 as shown in the chart above.
Central banks have been fighting deflation since the crisis started in 2008, lowering rates to unchartered level. The effect was to support artificially all asset prices.
This has renewed optimism in the Finnish housing market and induce the belief that the housing market is sound - a very dangerous dangerous asumption.
In addition, this optimism in the market has led housing builders to ramp up their production after a freeze in 2009 (at the peak of the crisis). Eventually, housing stocks are accumulating as more and more housing are being put in the market without finding any buyers (even though interest rates are at level not seen since the creation of the republic of Finland).
Also the economical outlook (see figure above) is deteriorating for an export oriented economy, added to that a ageing population with potentially (in the next decades) a shrinking population...all points to a scenario which tend to be similar to the Japanese experience.
And I let you compare it with the Finnish market, with a potential historical peak reach during 2010-2012:
8 comments:
Andrew said ( On 29 December 2012 08:51 )...
Helsinki Housing market has definately turned. There are now 152 own home houses for sale many pictured with snow on the ground. 152 would be around the peak summer inventory a few years ago. Less than one hundred would be typical since i began watching about 4 years ago.
Interest rates will go up everywhere else in the world before they go up in Finland thanks to the sound solvent position of it's financial sector. It's still the country with the lowest mortgage lending rate in Europe.
@Andrew
If there is an aging population it would make sense that the elderly would want to seld their free standing houses and move to an appartment or elderly home.
Also, I would like to highlight that relative to the rest of the European countries Finland's economic management has been outstanding and an example to other countries, and that this may attract foreign investors.
Consumers believe in their saving possibilities:
http://www.stat.fi/til/kbar/2012/12/kbar_2012_12_2012-12-27_tie_001_en.html
"Of the four components of the consumer confidence indicator, only consumers' already bright assessments about their own saving possibilities improved significantly in December from the previous month. In addition, views on development of employment in Finland were less pessimistic than before."
Rating outlook from negative to stable:
http://au.finance.yahoo.com/news/p-upgrades-finlands-rating-outlook-103602457.html
Building costs grew 1.8%:
http://www.stat.fi/til/rki/2012/12/rki_2012_12_2013-01-11_tie_001_en.html
Number of households with difficulties in making ends meet diminished in 2011:
http://www.stat.fi/til/tjt/2011/01/tjt_2011_01_2012-12-28_tie_001_en.html
Prices of dwellings almost unchanged in November:
http://www.stat.fi/til/ashi/2012/11/ashi_2012_11_2012-12-28_tie_001_en.html
"Compared with the corresponding period of the previous year, prices rose by 3.1 per cent in the whole country. In Greater Helsinki, prices went up by 4.0 per cent and in the rest of the country by 2.4 per cent."
American banks have once again begun producing mortgage-based bonds in substantial numbers. Meanwhile, institutional investors have been buying up low-cost houses in order to rent them while speculating on the value. As a result, the housing market may be going into another bubble. Are we headed for another financial crisis? Moreover, is history destined to repeat itself, given human nature? If interested, see the following article: http://thewordenreport.blogspot.com/2013/04/return-of-mortgage-based-bonds-another.html
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