Thursday, 31 January 2013

Significant milestone...

I think it is significant... Household income (first pillar) growth was a potential explanation for the housing rise (combine with faltering interest rates (second pillar)). So the first pillar is gone, and the second is lurking in the horizon (i.e. raise in interest rates) ...


Andrew said...


I would like to see you make a case for rises in interest rates. This crisis could be here for the next 20 years

Are you expecting rises in inflation? Should we for example be buying assets to protect ourselves from that?

Surely we are doomed to low growth, barely alive economies for more or less forever?

Are you really so optimistic that you can see interest rate rises on/in the horizon? Are they hiding in the horizon or on it?

Faltering interest rates? They fell rather than faltered.

Billpete002 said...

I believe you are touching upon a reply I posted here earlier Andrew - that we should be worried about China/Asian growth.

The West is going into one of two scenarios:

1.) Default and deleveraging the debts

2.) Print as much money as possible to prolong #1.

Right now we're doing option 2. We're making it worse. Japan, ECB, and the US Federal Reserve are all in a battle to devalue their money as quick as possible.

And they know they can't raise rates otherwise the whole house of cards falls.

But we'll end up like Greece - wake up one morning and the rules of the game will have changed and that is when the Finnish housing market will collapse.

Anonymous said...

A week or two ago Kaupalehti had an article about how the banks were raising the marginal rate on loans because the bench mark Eurobor rates were so low. All the banks reported upward pressure on the mariginal rates.

So far the rises have been small in the 0,5 - 1% range. I expect in the next year or so a similar amount might be added. I also expect the bench mark rates to remain low.

This looks like it would put some pressure on your second support, but probably not enough to buckle it, let alone make it collapse.

"island Crow"

Andrew said...

I see California. the 8th largest economy in the world is showing surprising signs of life. The deficit is now under control and in places houses are getting 30 offers before selling. There are now double the usual number of cash buyers and funds are buying property. The US undoubtedly has a huge number of problems but it could be far worse.

Billpete, We may yet muddle thru.

Island Crow, I am not sure why but the banks signalled at least 3 or 4 years ago that if interest rates became extremely low they would increase their margins. When we bought here the margin was .6% and our total loan cost was 2.1% Not sure what it is now.

Billpete002 said...

The reason the housing market is making a turn for the better is the Federal Reserve Bank is buying 45 billion dollars of mortgage backed securities from the banks at a 1:1 value. A month after they started this interest rates for houses shot up. A 30 year fixed went from 3.2% to 3.68% almost overnight. And they plan on doing this until we reach 6.5% unemployment... I dare not think what will happen when the printing press stops.

Andrew said...

Billpete, Your theory depends upon here being an absense of buyers for agency mortgages as well as treasuries. In fact all that has happened is that the low rates created by the feds purchases are forcing some of those normally buying these securities to look for more riskier assets. All that is going to happen once the fed stops purchases is that these long rates will increase while the short end stays supported by ZIRP. It will not be a big change but will be sufficient to have a restraining impact upon growth in the US.

The agency MBS is a pretty good security compared to junk bonds. Today even junk bonds are sought after and even private label residential securitizations are coming back. If your theory was true interest rates would be much higher and these other things would not be happening at the current rates.

The fed is actually operating in a market for these agency securities rather than being the market.

The good news is that about a year from now we get to find out as the purchases wind down - it could start by mid 2013.

The crisis though will run on for the next decade or more.

Anonymous said...

If the states/countries are backing their local banks and the risks that they take, the moment when the house of cards falls the deck will be stacked in the order at which states can guarantee the repayment of the needed loans to be considered solvent by the markets, so the solvency of the state and its historic loan performance, as well as it's sheet.

From that perspective Finland is considerably more solvent than the US with only some 36% of BBP as debt.

When it comes to private household debt, this is considerable but also area of improvement where a lit of finns are actually paying off their houses so the LTV rates on average are still well below 80%.

The only concern I have is whether young people can get jobs, whether new jobs are being created, and whether the loan performance of loans being repaid in Finland remains as high as it is. If it does, and with therest of the world seeking safe places to invest their money in, I would not be surprised to see house prices continue to go up as capital seeks safe haven and ironically, considering the state of the world economy at this moment, finnish real estate in the capital region may be one of the safest places.

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