Finnish Housing Bubble Bursting - Asuntokupla

The ECB, The Government and the Donkey

2009-11-06T06:00:00.000+02:00

“…in the euro area, there is evidence that the credit quality of banks’ loan books has deteriorated on account of intensifying financial distress in the household and corporate sectors.

Banks could be getting over the valuation losses they have suffered on their securities holdings; however, the rapid increase in loan loss provisions suggests that a renewed wave of write-downs on euro area banks’ assets may be imminent, with ensuing capital reductions”. by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, Florence, 16 October 20

The first ECB warning shot...I suppose the "economical optmimism" period is about to be over in about 6-12 months and then we will be resuming the market correct in almost all asset types : stock market & Housing.

With regard to Housing, the media did a pretty good job at foolling the "last foolish"...spreading that the recovery is on its way and that the housing market was recovering...indeed it will temporarly, thanks to the "last foolish" and helped by generously blind banks (who will be waiting for the "last foolish", in the dark, round the corner, like a "bad dealer" providing the addictive "credit shot"...)

On 30 of October, Statistics Finland has published the Quartely housing price trend that has shown growth due partly by record low interest rates, no inflation and our "last -poor trapped- foolish".

As I said previously we will experience a "double top", troubling sign that happen at the end of a bubble (check the Nasdaa or OMX-H in 2000, or the petrole price in 2008)...after that, usually the fall is pretty sharp and last about a year or two.

Now what will trigger that, nobody knows ... in the meantime the government is borrowing as fast as it can in order to have a cushion (and avoid raising tax too early - that is, to ensure the current government is re-elected) in the next few years to come.

Raikkonen Lovely House

2009-11-04T05:21:00.000+02:00

"Oct. 30 (Bloomberg) -- Kimi Raikkonen, the world’s second- highest paid athlete before being dropped by the Ferrari Formula One team, is having trouble selling a 14.5 million-euro ($21.5 million) second home in his native Finland.

“The potential clientele for this price range is very small,” the realtor for the property, said in an interview. “It’s the most expensive home for sale in Finland.”
The price, 16,111 euros per square meter, compares with the mean price of 2,614 euros per square meter for new one-family homes in the Helsinki metropolitan area, according to second- quarter data published by Statistics Finland on Sept. 11."

It is bit sad that "Statistics Finland" is misleadng the external world on what is the real price in Helsinki. In fact you can quite easely double that.

One famous economist, British Prime Minister Benjamin Disraeli, said:"there is lies, damn lies and statistics" , He can't be more right.

Coming back to Raikkonen house, if one reader has still some pocket money left, why not making a bid? here is the link to the house.

It is worth to note that the picture gives you the impression that you are near Monaco...well don't be fool you are in Finland and if you are lucky you will be able to enjoy in between 1-2 month sunny weather.

So my point here is for 14 million euro you better put it somewhere a little bit sunnier, maybe Spain where price are bound to be divided by two in the next few years. Having said that, if it was a great house why selling it?

Predicting Interest Rates Burst

2009-11-03T06:47:00.004+02:00

The central bankers have driven their interest rates policies based inflation targets.The European Central Bank (ECB) target is 2%.

However, with globalization and massive speculation on financial markets, can we really be confident that central bankers are in control? For example, petrol price currently is mainly driven by financial institutions/speculators hedging against the fall of the dollar instead of reflecting the real fundamental of the global economy.

In addition, they clearly underestimated asset prices speculation (housing and stocks) effect on the real economy and its effect on consumers (wealth effect) or choose to completely ignore it.

Now here is one over many scenarios (see chart below) on what could happen to interest rates. This is based on the fact that central bankers have currently no choice than to support a very weak economy in which many actors are deleveraging (paying of their debt under low interest rates). They are taking big risks where we could see interest rates burst into an explosive and fast manner.

To check the inflation in Europe, here are links inflation indicators:

- ECB Inflation Dashboard
- 3-Month Euribor
- Government Bonds

PS: I have added a reference on the right menu of the blog

"Food" For Thought

2009-11-02T01:13:00.002+02:00

Back in 2008 during food price soaring including grain:

"Reijo Miettinen, 62, never had to worry about going hungry until global food prices soared and he had to join a growing number of Finns forced to turn to charity to fill their bellies.

Miettinen, a pensioner with thinning grey hair, eagerly shows off the day's catch: bread, ham, milk and a couple of ready-made meals -- all for free courtesy of a group called Veikko and Lahja Hursti's Acts of Charity.

"After I pay my rent and buy a monthly bus pass, I don't have much money left. That's why I come here," he told AFP as the food queue behind him circled around the yard before disappearing around a corner."

In October 2009, few months after hunger strikes around the world and growing queues in finland (which I suppose still exist but not so much mediatized)

The Finnish economic affairs ministry said in a statement Wednesday it had asked Esa Härmälä, a former head of the Finnish farm lobby, to draw up a report on the feasibility of launching grain-based fuel ethanol production in the country.

Mauri Pekkarinen (centre), the economic affairs minister, said Mr Härmälä's job was to establish whether surplus grain could be used to make ethanol while ensuring self-sufficiency in feed.

I suppose that this time they will use the "environment" reason and manipulate the "lost in translation" green party that are still travelling with big air plane and driving cars to sprout their green ideas...

Finnish Housing Bubble

2009-10-30T05:03:00.010+02:00

Statistic Finland has published the latest dwelling price for the third quarter. It is worth to understand that those prices just reflect a trend not necessarly the reality as experienced and observed on the ground since Prices are overly underestimated by Statistics Finland (even if this institution is transparent on its methodology and how it gets the data).

As expected, it shows higher prices compared to the previous quarter however still lower than the peak reached in 2007. I

The following picture shows the forecasted trend before statistics Finland published its data and provided some analysis see post "Housing Price : Warming Up Exercise".

Now what can explain the latest rise?

You must understand that the last leg up is not due to fundamentals and it is not coming from an healthy market. Distortion are hapenning at many levels and are pushing prices into a very dangerous and worrying path that could destabilize the economy as a whole and in particular the banking sector.

Now the facts:

1- Interest rates for housing purchase
As you can see in the figure above, interest rates are historically low. This is giving temporarly some oxygene to people who heavely borrowed at variable interest rates in the past few years. Lower interest rates is as well distorting the market as it is bringing into the market buyers that would otherwise not be elligible to borrow large sums for housing purchase, especially the young buyers.

Now, I would say that if Finland had its own currency and interest rates setting, I would then say that interest rates could stay low for a prolonged period but it is not the case. It is the European Central Bank that control Finland monetary faith. Indeed, the ECB will have to raise interest rates even before inflation shows its head and that could then be highly inadequate for Finland economical situation. It could be earlier than people would think.

2- State Sponsored Speculation

The government has still maintained interest rates subsidies even after IMF recommendation to phase them out. This has contributed over other elements, to an overheating of the housing market in the past few years.

In addition, the state in conjonction with banks is "lurring" the young to acquire price inflated flat, here is what YLE reported (full article here):

"Special bank accounts intended to help young adults get home loans are growing in popularity. Since July, customers of these so-called ASP accounts are eligible for a 3,000 euro bonus from the state.

OP Bank Group, Sampo Bank and Nordea Bank have all reported an increase in ASP account holders."

and from the Nordea site :

"If you start saving right away, you can have the necessary 8 deposit lots saved and buy a home before the payment period of the state home saving bonus of 3,000 euros ends on 31 December 2011."

3- Finland Economical Situation

It is pretty disastrous , just have a look the latest GDP figures, it is even worse than the 1990 recession. In 1990 we had the beginning of globalization and the birth of a giant Nokia. Today we have curretnly emerging markets overheating by ill designed stimulus that are putting at risk their economical stability - those stimulus and interest cuts were put in place due to economical distress. Moreover the Finnish giant industry are all but struggling.

Finland cannot devalue its currency which was the ultimate solution to bring back competitiveness and boost the export market. The Euro is too strong for an economy that mainly rely on export.

4- Finland DebtNow there was some talk that Finland will borrow huge amount next year (around 10 billion euro). I'm just wondering if it is a way for the country to lose its credit rating .

One explanation would be that it's better to borrow before it gets too expensive. Finland need to borrow is massive since it need to fund projects in order to limit unemployement from reaching scary figures. There are as well massive needs to fund a growing and worrying amount of retiree.

Of course, it is hapenning at a time of political elections hence no risk to see tax rise around this time hence the need to borrow...

Indeed there is nothing as a free lunch what is borrowed today will have to be repaid so expect higher tax down the line. It is sad that money being used today will mainly go to banks and builders, one that enjoyed an easy ride over the decade.

Let's see what "Bank of finland" had to say about that debt:

"As in other countries, the accumulation of debt by the public sector in Finland is justified. It has made it possible to soften the impact of the recession. Fortunately, the financial position of general government in Finland at the beginning of the recession was strong, at least relative to many other countries.

A continuing trend of increasing indebtedness is, however, not sustainable. Before long it will be necessary to reach a level at which the debt ratio can be stabilised. The higher the debt ratio, the larger the primary surplus will need to be in the future. The primary surplus is the difference between public income and expenditure, excluding interest expenditure. Rising interest expenditure must then be financed by tax increases or by cutting other expenditure."

legal note: whatever it is said in this article is not of the responsability of the author , any reference to any entities may be accidental. Anything said above may not be true and may be removed at any stage, at anytime (you like it or not).

And again I warn people by the media (lobby driven) that distort or try influence people mind - as an example see YLE (which is one the cheerleaders) and refer to the post : "...get some fresh air"

Switch-off Your TV/Newspaper and Get Fresh Air...

2009-10-29T05:05:00.001+02:00

As I have been repeating limit your exposure to news or media in general as without much notice your way of thinking will be out of your control, on the way , the vision of the world will undoubetdly be distorted.

Take for example the free newspaper "METRO" that can be found in metro or train station. Every morning while sitting in the train, in the way to work, and I shortly observe people around me, one will be amazed by the amount of people reading this newspaper as addicts in need of their morning information. At the arrival, the target is achieved, most will probably have the same view of the world ...

TV can be put on the same level and it gets people scared!
Here is an example:

Finns perceive more threats around them now than during the cold war. According to an expert from the Finnish National Defence University, politicians are largely to blame for creating new threats.

Another outrageous subject grossly abused by the Media and the politicians ... the "SWINE" or "H1N1" or "SIKA" or "PIG" Flue ... I wonder who come up with those names...

So the Piggy Flue have killed so far .....1 - one - Yksi person...

Yet it is considered as very dangerous disease while on the other hand more than 1000 - thousands are dying regularly from the same desease year after year, as shown in the following table while at the same time the bigger seller of alcohol is not behind bars (just kidding (see foot note)):

So my advise keep your mind "independant" and most importantly your judgement intact and not biased by the daily media calculated information coverage...

Footnote and legal note: whatever it is said in this article is not of the responsability of the author , any reference to any entities may be accidental. Anything said above may not be true and may be removed at any stage, at anytime (you like it or not).

...Next the ECB rate increase?

2009-10-28T05:20:00.001+02:00

In yesterday's article I wrote the following:

"... In fact, price will correct due to the forced exit strategy by central banks that will led them into increasing interest rates to avert twin bubbles as already observed in the stock market and housing market."

So today we have the following headline news:

Oct. 28 (Bloomberg) -- Norges Bank raised its key interest rate a quarter point from a record low and signaled steeper increases than it previously forecast over the next three years as inflation accelerates and unemployment remains low.

So should the ECB follow the same path, we will enter a zone of turbulence with regard to the housing market.The dices are thrown ...

Housing Price : Warming Up Exercise

2009-10-28T05:07:00.001+02:00

This is my baseline scenario reviewed based on the current interest rates and bank lending behaviour.

I will come back to the housing price trend on the 30 of October, when "Statistics Finland" will publish 3rd quarter dwellings price.

It gives me an opportunity to prepare the ground before the data is released and try to make an analysis to explain the current situation. The economy is in bad shape, there is no doubt about that however the central banks and government have flushed the market with easy credit (historically low interest rates).

This will probably push any asset price even higher and make the current bubble even bigger and quite dangerous. So in order to avert the current financial crisis they have put the seed of an even bigger financial monster.

Having said that, the outcome of my baseline scenario is still valid, but instead the correction could be more severe and more violent on the economy. In fact, price will correct due to the forced exit strategy by central banks that will led them into increasing interest rates to avert twin bubbles as already observed in the stock market and housing market.

The other intersting piece of data that puzzle me is the consumer confidence component "Finland economy in 12 month" which is at record high, even greater than the dot com bubble...

Finnish Housing Indebtdness (Updated)

2009-10-26T06:07:00.006+02:00

By looking at the data provided by "Statistic Finland" (see reference) , one will not be surprised to learn that Finnish exponential indebtdness growth is behind the phenomenal surge in housing witnessed since 2000.

The following charts will try to demonstrate that we are currently walking on thin ice... It underlines the country's politicians and/or economists inability to oversee a situation that went out of control in the past 10 years.

Since the data has been gathered by "Statistics Finland", income has always been greater than credit, however since 2008 the situation dramatically changed...

In order to compensate for the difference between the income growth (linear) and asset price growth (asset inflation : housing, food, land, rent, etc...), credit was used to fill the gap hence the exponential growth witnessed.

Now Nordic banks are extremely nervous to see the unemployment growing since the amount of debt hold by private household is worryingly large. Should the deleveraging of the household happen, the consequence in the economy will be felt for many years to come, in particular the housing market will be greatly impacted.

Now, let's go back in the past and try to underdstand the root cause of this housing bubble. So, in order to have a housing bubble, you need to have more demand than supply. In order to have more demand, bank only need to provide more credit in order to boost the amount of transactions, and indeed this is what they have done, reckless lending, non regulated financial market that went "nuts"...Where investors were purely driven by greed and where consumers were viewed as a possible channel for reaching quick profits or high bonuses.

This is what the following chart demonstrates. The number of transactions for housing purchase have been multiplied by more than 3 in ten years (1998-2008). The same phenomenon was observed during the previous reported and well publicized bubble (1981-1991).

It is true that since 2009 the situation has reversed (unfortunately the data is not available from statistics finland database). The number of transaction has collapsed and the interest rates on housing loan has fallen markedly. The latter will probably affect/distort temporarly the indebtdness level and allow a "temporary" window of transaction growth. I insist this is temporary, and it is a side effect of the central bankers to deal with very severe economical conditions.

In addition, the Loans for house purchasing growth (year-on-year % change) shows clearly a continous weakness since the peak reached in 2006 (Reference : http://www.ecb.int):

Builders have understood that the market has turned and have drastically slowed their contruction ambition, as demonstrated by the evolution of the number of building permit granted. So on the one hand the professional have understood that the market has turned while on the other hand the media is pushing into believing that the housing price (in nominal or real term) will continue to grow and that it is sustainable.

See below the evolution of the number of building permit granted (reference : http://www.stat.fi) :
To conclude, I will say that we have had a credit bubble that fueled the housing and stock market. In the past 12 month, the economical situation went to an abrupt change and pushed central bankers to take incredible measure to stop the global economy from falling a cliff and overall sustain social stability more than wealth preservation.

I'm still convinced that the housing correction is overdue and a low will be reach in between 2010-2014 which was my baseline scenario since end of 2007 before the financial crisis was starting to be the main headline... however we are in a very unusual situation where past economical and political model have been damaged, and to that extend we will see the emergence of a new economical paradigm and see the emergence of new leaders. It will take time and the impact will be unknown, hence the need to adapt one's view with regard to possible economical development in general and to the housing and stock market in general.

Guess ... (The Answer)

2009-10-20T20:27:00.008+03:00

Guess what it is? ... answer in 5 days ... and its implication.

I have had very interesting comments...let's dissect first the answers provided by "Island Crow" and "Eric".

"Island Crow" : Unemployment rates?

Well, the trend is similar however in the opposite direction.

If we look at "statistics finland" last unemployment release data, We can construct the following chart, of which I have taken the pleasure to extrapolate a possible trend:

We are currently in phase (1), unemployement is growing as the demand is faltering and the excess capacity removed. Phase (2) is a stabilization of the unemployment growth due to low interest rates and government spending especially in the construction sector (Roads, Metro, Opera and all the possible way to keep afloat the construction sector with the tax payer money and supporting companies such as Lemminkainen and YIT to name few). In addition, as rightly highlighted by "Island Crow", there will be a wave of retiree that will, in some cases, be replaced by potential unemployed. However, as shown in phase (3), when all the stimulus bullets will be shot and when the european growth will resume its downward trend the unemployment will resume higher as witnessed during the early 90's.

Now, it is worth to notice that female unemployment is lower than the male unemployment during the bad time which usually reflect the contraction of the construction and heavy industry.

Talking about female and contraction. There was another interesting comment:

Eric : "HousingFinland's sperm count..."

Well, the trend may be similar however statitically it does not reflect the male sperm count in general. After some "theoretical" and "practical" research, it is known that the sperm count will decline overtime however you only need to have 1 to 2 successfull sperm hit on the ovary egg to fulfil your family ambition. What has to be remembered is "Quality over quantity" ;->, the picture below show probable evolution on "the count" overtime (note the statistics start just after the 1929 crisis to the next mild one of the 1990...in line with housingFinland spirit...).

So the man fertility in general is pretty strong...statistically.

Now how about the initial picture?

The picture reflect the "MFI loans to households in the euro area", (Chart 5, "Monetary policy, credit flows" by Bini Smaghi), and it is contracting very substantially and in a robust manner, not even reflecting the fact that government have flooded the market with tax payer money and the ECB interest rates are at all time low.

So no sign whatsoever of a consumer back to frenzy spending. Household seem not interested in contracting credit for large purchase. Something opposite of what happened during 2003 which had led to asset inflation.

So this chart is very important to follow, should it stay under the zero level, which mean contraction, then the deflationnary trend will be triggered and anchored.

Thou shalt not covet thy neighbor's house

2009-10-12T01:41:00.002+03:00

"Signs of optimism are emerging in the Finnish real estate market. However, buyers say they're confused about where the market is heading.", YLE, 12 LocaKulta 2009

So here is my message to the confused "buyers" : "Don't be"

Historically, housing price has never grown while unemployment is heading higher.
Think about the fact that interest rates are historically low, yet Bank lending for housing purchase has collapsed from a year ago and no sign whatsoever of a recovery...except based on "cheap talk" from real estate agents amplified by some media and crook economists.

So I would rectify the YLE statement by saying "Sellers are confused, some are scared and others worried".

As I said there has been a little bit of euphoria as if the economy has recovered..It has not. It's all about government stimulus and ECB interest rates forced generosity.

The cure that have been administered in order to solve the current crisis has not treated the root cause but instead delayed (by 6-18 months) the outcome of 20 years of credit binge.

Takling about credit recklessness, Nordea comes straight to my mind.

Nordea for example is trying to use "the fire to fight the fire"; Using bad credit style to fight bad credit past behaviour is a bad principle in itself and it won't work but it shows you clearly another sign that this bank is trying to fight for its survival. They clearly made mistakes by overexposing itself in the baltics which are at the bring a regional tsunami....and they will pay a heavy price for that...and hopefully they won't pass their pain to the "consumer" or "buyers" by overshooting their base rates or margin...I bet there are capable.

Here is a statement from Nordes taken from their web site :

"The loan interest it tax-deductible if the loan is

a loan taken out to acquire income which is considered debt taken to acquire taxable income, for example, loans taken out to acquire listed shares or rental income."

Amazing, but it is taken as is...re-read it... "loans taken out to acquire listed shares"

That's crazy...they want people to speculate on stock market...while abusing rules on tax deduction. So the government has put in place a flawed system - the regulators are somewhat hibernating and Nordea like a vampire tries despereatly to fool badly the last "buyer"

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Nordea ... Lesson "Not" Learned

2009-10-06T01:16:00.001+03:00

So Nordea is fighting deflation with its own tools - rather limited though.

Credit is faltering and consumption is sluggish...so how do deal with that? well use the bad behaviour that was the cause root of the current crisis - as if the crisis happen for nothing and give you the sense that institutions, banks do not learn a nickel out of that.

Let me be more clear...and point to what make Nordea, not an example to follow...

Make use of your home equity

"Would you like to utilise the assets tied to your home to realise your plans?

Does your home need improvement or would you like to buy a summer cottage? Is the block of flats you live in going to have pipe renovation or other repairs? Are you interested in investing? Would you like to give your children or grandchildren a nest egg to get them started in life?
Benefits of HomeFlex

* The interest you pay on your loan equals the interest the bank pays on the deposit on your account.
* You can deduct the loan interest in taxation. Read more
* You can use the loan in the way you want and the account is used as any ordinary bank account.
* The loan period is ten years. During this time you don't have to amortise your loan - you just pay the interest. After ten years we will agree with you on how to continue."

Read again the first and last sentence :
- Would you like to utilise the assets tied to your home to realise your plans
- The loan period is ten years. During this time ... you just pay the interest

I thought that this crisis was all about reforming a failing financial regulatory system...looks like nothing happen. This is the reciped that put the American financial system on it knee that ultimately had to be rescued with public fund.

Today Nordea has been hit by the "I-Dont-Get-It*I'M-Not-Listening" syndrome...and yet, regulators are still fighting the last battle , most probably analysing what went wrong and allowing in real time such development...

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Poor, Bumpy and Placebo

2009-10-02T03:30:00.000+03:00

"Our staff told us this month that the real economy could be a little bit better, in average, in 2009 and 2010 than what had been projected three months ago – 0.5 % higher for each year.

1- But is means that 2009 will remain very negative and 2010 perhaps only very slightly positive, as an average. I don’t exclude that we could observe positive growth, quarter on quarter, at the level of the euro area as a whole, before mid 2010. But this doesn’t change our main message.

2- Namely, that we have a bumpy road ahead and that the level of uncertainty remains exceptionally high and therefore that prudence and caution are of essence.

3- Now much depend on us, on our capacity to reintroduce confidence in the financial and real economy decision making processes, in the households as well as in the corporate sector. It is what the ECB and the Eurosystem want to do: preserve confidence, inspire confidence, remain a solid anchor of confidence. "

So that was the message from the ECB president, Mr Trichet...the only person that has good track record and inspire confidence...

So the message is clear, we averted a total collapse (by firing up the whole set of measure and stimulus) in order to have a disastrous 2009 and a no growth scenario for 2010.

After that it is X, the unknown ... no possibility to launch any measures and just wait.

At the same time, cross fingers, touch wood and optionnaly read kauppalehti for subliminal messages...

Having said that...at some point there will be a price to pay for saving the financial system (that was past feed by greed)...like the Incas..one will need to be sacrificed ...the poor, the young and the ederly through a ravaging inflation/stagflation..but that is tomorrow battle..maybe in 3-5 years time...in the meantime, deflation is advancing and getting stronger day by day

So The ECB Has An Exit Strategy...

2009-09-28T01:33:00.000+03:00

"It would be premature to declare the crisis over,” Trichet said. “Now is not the time” for the ECB to unwind its stimulus measures. “However, at some point in time an exit strategy will have to be implemented. The ECB has an exit strategy and stands ready to put it into action when the time comes."

And so here is my scenario in few "silver" bullet point in a random fashion...

The stock market rally extend until end of the year.... to fall to an historical low within the 2010-2011
End of 2011 the ECB exibit its exit strategy by increasing its interest rates by 8 fold within the following 12 months
The housing market collapses and reach a low in 2012
The Finnish parliament is dissolved at the turn of next year ...not because of election corruption but of incompetence and inability to deal with the current situation.

"Home Ownership Obsession"

2009-09-25T03:30:00.000+03:00

"Ireland should end its obsession with home ownership and look at alternatives such as renting or leasing, a former housing adviser to Bill Clinton said today.

Speaking in Athlone today, Nic Retsinas, now a director at the Centre for Housing Studies at Harvard University, said in recent times homes had started to be viewed as an investment opportunity rather than a place to live and raise a family.

Mr Retsinas was addressing the biennial conference of the Irish Council for Social Housing.

“Over time a different vision crept in. There was conspicuous consumption and an environment of encouraging lending that wasn’t very prudent,” he said.

“People should not be obsessed with owning a property. Maybe the issue should not be about home ownership but about something such as making sure people live in decent homes,” he said."

A smart guy, pretty rare nowdays...and most probably he did not need any fund extorded, robbed from public funds...to come with this kind of analysis.

I keep the best for the end :

“Society almost demonised renting. You weren’t smart if you rented. But, as it turns out, those who rented could be said to be the smart ones now as property prices crash”, he said

We shall check that back in about 2-4 years time..nothing compare to a lifetime of being a borrower...

I see "corrupt" people... In your dreams?

2009-09-21T01:02:00.001+03:00

I have been looking at some news headlines and corruption news seem to erupt everyday, and touching all levels.

Yet most of the people involved are still in power or in their position ... it is very worisome as they are in command and have in their hand power that can shape the futur of this country.

One interesting question that one could raisewill be : "is the current political landscape legitimate and reflect the Finnish population choice"...no one has a clear answer sadly?

Nevertheless it remind me a movie, I let you guess it ...

Cole Sear: I see corrupt people.
Malcolm Crowe: In your dreams?
[Cole shakes his head no]
Malcolm Crowe: While you're awake?
[Cole nods]
Malcolm Crowe: Corrupt people like, in politics? In Nuorisosäätiö?
Cole Sear: Walking around like regular people. They don't see each other. They only see what they want to see. They don't know they're corrupt.
Malcolm Crowe: How often do you see them?
Cole Sear: All the time. They're everywhere.

Baseline Scenario, Japanese style and the Kalio Pub

2009-09-18T03:20:00.004+03:00

One see an apple that has grown bigger and bigger and yet not falling from the tree, as an interesting phenomenon and somehow is overwhelmed by the strength of this apple - still hanging hard and defying its fate. However ultimaltely it will succomb the force of nature and follow the law of gravity. The fall is unavoidable and this particular fall may open new opportunities for others (at least one fell in the head of Mr Newton and allowed major breakthrough).

So yes, house price are still hanging , helped by unnatural phenomen called politicians and policy makers. However the fall is unavoidable...bear in mind that they are not fighting to rescue the housing market but instead the whole system (see the UK and US where politicians and economist are a little bit more advanced in policy making and global economical strategy...at the moment they control the rest including the fate of Finnish Finland)

Back to reality... Observe the phenomenon that occured in 1990, as show in the picture above: a double top (I suppose created by the one who desperatly were waiting for a correction, so clearly a bear trap)...and what deceively followed by a lifetime correction.

This scenario is my baseline scenario with most probably between 30-40% correction by 2012 and probably 10-20% by end of 2010, a time where the stimulus are all but disappearing. The economy will be in such a state that it will not handle another crisis currentl ygerming that is unavoidably bound to happen: the currency crisis due to last resort measure exercised in the past year to disable the effect of the financial crisis created by about 10-20 years of policy making and regulation miscalculation assorted with uncompetence...(believe it or not I'm not writing, on the fly, after few pints in a dark pub in kalio...instead I'm surrounding by my daughter that do not understand how is it possible that there is better thing to than wathing a cartoon with her (TiTi Nalle)...)

All in all, the best case scenario for Finnish Finland, which could invalidate my baseline , is the Japanese type scenario, a slow decrease of price in the period of 20 years...losing 50-60% during that period...almost unnoticeable (3%/year). this could be a stagnation of price combined with higher inflation...

I will update soon my prediction of the current price evolution based on the latest technology (...), when I decide to become unproductif...

Erkii and The "Placebo" Economy

2009-09-10T03:33:00.001+03:00

"Erkki Liikanen, the governor of the Bank of Finland, told the parliamentary finance committee on Thursday ...

... that a lack of confidence in the balance on the market and among the public would have an "immense" negative impact on the economy.

... that the Finnish economy was recovering from the recession at a slower rate than other EU countries were because the share of exports of Finland's gross domestic product was relatively high in general, with 80 per cent of exports made up of investment goods and raw materials"

Nothing much to add unless the fact that Erkki is stressing that the recovery is based on a virtual fundation: "the positive attitude" ... back to '68?

Tax Men : "They are coming from Venus"

2009-09-08T05:17:00.002+03:00

"Taxation task force wants to cut back on tax deductions.

A working group set up to reform taxation in Finland has set as its goal the establishment of as wide a tax base as possible.

The group is not expected to propose that all tax deductions be eliminated. For instance, the biggest tax break, the right to live in a home that a person owns him, or herself, is unlikely to be changed.

Ordinary people do not understand the idea that living in their own home constitutes income of some kind, or that this income might be taxed, Hetemäki concedes."

How about taxing the right to breath? afterall it cost to protect the environment hence the quality of oxygene...if we follow the "tax man" logic.

Nethetheless the government seem to become innovative in order to bring some revenue into its coffer before..it declare itself bankrupt? who knows...

"It is expected that the working group will call for the taxation of profits on the sale of one’s own home. Now a home can be sold tax-free if the seller has lived in it for at least two years. The working group is also expected to propose the elimination of the tax deduction on the interest paid on housing loans."

Although, for some cases I agree, the tax break on interest rates deduction for example should be eliminated and it is the perfect time now as interest rates are almost near zero... so the tax payer won't notice a thing...in the short term.
In any case,it was one reason among many others that explain the current housing bubble.

From the Finnish Illusion to the Pragmatic ECB

2009-09-03T03:03:00.002+03:00

Forget the Finnish Banks forecast(or Swedish or Danish since they are clearly the biggest player in the Finnish market) since it is biased, unreliable and had a very poor track record (something that people tend to forget over time).

Instead I will advise to seek an independent view, through the voice of Mr Jean-Claude Trichet, the president of the European Central Bank (ECB).

Here is what he had to say and doesn't need any further comment on my side, as it describe the current situation in a very crystal clear manner, in a non confusing way and not targetted at fooling the common pedestrian...so here it is :

“Uncertainty is very high,” Trichet said. “It’s a bumpy road we have ahead of us. Prudence and caution are still of the essence.”
The ECB today raised its economic forecasts for the 16- nation euro region to predict growth of about 0.2 in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago.

X

2009-09-02T20:31:00.004+03:00

The real estate market has been hit hard by the recession. Sales fell in the first half of the year by nearly a quarter compared to the same time last year.
The amount of money spent on purchases dropped by about one third.

Buyers were also interested in much cheaper properties. The National Land Survey of Finland says that sales of small houses and lots fell dramatically.

During the first six months of the year, 27,500 real estate deals were closed, a decline of 24 percent from the same period of last year. The deals totalled 2.7 billion euros, down by 34 percent from the first half of 2008.

Sales of lots for small detached houses slumped by 35 percent, while house sales dipped by 23 percent.

The number of vacation homes sold also shrank by one quarter. In particular, Russians' interest in buying holiday properties in Finland has slumped. Last year Russians purchased 780 properties, but this year's figure is expected to be about one quarter of that.

Sales of farmland dropped by one third and of forest lands by one quarter. However prices paid for fields rose since last year.

YLE

Put as-is as extracted/pumped/copied/diluted/borrowed/shoplifting from YLE.

Nevertheless it fit my analysis of the situation in this very thin and volatile market...a reminder that the housing market follow cyclicale patterns. Pattern you said? how about a 20 years pattern: 1970 (market lost 40% from peak to bottom), 1990 (market lost 40-60% peak to bottom) 2010 (market lost X % from peak to bottom)...

NOrdea or NOidea?

2009-09-01T04:00:00.001+03:00

"Finland’s economy will jumpstart by the end of the year, says the Nordic banking group Nordea. The bank’s economists say they’ve been recording positive signals since this spring.

Nordea is, however, not adjusting its prediction that Finland's GDP will contract by 4.5 percent this year. The bank meanwhile raised its outlook for next year, saying it believes the economy will grow by 2.5 percent in 2010.

The bank says consumer prices will remain steady this year and will rise by 1.2 percent next year due to climbing interest rates and raw material costs.

Nordea says its optimism is rooted in a generally brighter global economic outlook."

This bank, back in february went almost out of business if they had not required fund from different parties or if the ECB did not lower the rate to level not seen since the birth of this bank.

Now I'm not sure if theyh are trying to use a "placebo" strategy, in trying to make believe to the mass that the worse financial crisis is over amid worrying level of debt (that is by the way still growing) and amid massive deflationnary forces.

"The economy will grow" is a quite big sentence, at best they are trying to fool the mind, knowing that the overall economy was in complete free fall few months ago.
It is as well a dark reminder of the forecast that the intelligentsia and other economist and bankers echoed during the 1990....at the end they were completely wrong and had to be rescued.

Again how can bank forecast something that it had not understood and that is so complex and independent of the beahviour of the local economy. at best they have No IDEA of the kind of message they are propagating....

Nethertheless I wanted to mark what Nordea said so to come back in a year time and review what has effectively happenned to finnaly confirm that they clearly have no idea, no idea of the current situation...

Having said that...be productif, stop accumulating debt,pay what seems right for a rent or a house and do not overspend.

Silent Corruption...the Finnish Style?

2009-08-24T02:59:00.000+03:00

The City of Helsinki had reserved a plot for the UPM headquarters, but the company applied for an extension for the reservation. The company was granted an extension until the end of June 2010. ”I have nothing to report on the matter”, commented Real Estate Manager Kaj-Erik Lindberg from UPM when questioned whether the forest giant plans to abandon the construction project entirely.

As far as is known the city has offered UPM the plot for a lower-than-normal price for ”industrial policy reasons”. The quoted price is approximately EUR 1,300 per square metre of permitted building volume.

Reportedly, Senate Properties intends to secure hundreds of euros more per square metre for its own plots of land.

”If the market price does not rise sufficiently high, we will not sell the plots at all”, notes Director Heikki Laitakari from Senate Properties

The last sentence make me fall off my chair...re-read it please... You can clearlu see that the current law accomodate speculation. In addition, the fact that in a very dense city as Helsinki, such beahviour is allowed is clearly outrageous. In most of developed countries land that is not used is heaveluy taxed in order to stop this type of counter productive behaviour...

Well law makers are sleeping or do not want to disturb the guys that fund them indirectly ...

Coming back to UPM, this shows you that big and old businesses (Wood, Banks, Energy, Media) are still in control of the political and economical landscape in this country...a big disapppointment.

Food for Thought...

2009-08-21T03:57:00.003+03:00

Sometime ago I met a very wise man, most probably aged about 150 years - the type of person you can only find in the middle of a myst, he told me : "a picture, my son, is worth a thousand's politicians words." ..I was astonished....well in the meantime he faxed me the picture...

So here is the picture :

Total collapse of granted dwelling permits...to help you digest that I have extracted two major information.

First, the recovery of the housing market that seemed to have occured from 2003 has been completely invalidated thus implying that the price growth observed during that period is irrational.

Second, looking at the nose diving evolution of the trend, we are clearly in an unchartered territory, something not experienced since at least a decade ago.

Common Sense and Rationality...Help needed!

2009-08-10T06:14:00.002+03:00

Output of the Finnish Economy...historical slump on the way

I did not know how and where to start in trying to express in few words some common sense and rationality on what is going in Finnish Finland peculiar housing and rental market.

Indeed, one has to travel around Europe in order to get enough distance for a better analysis on the situation, but if I have to put it in 2 words, it would be:
"Crap and Expensive"

Now in order to echo the words of the Finnish prime minister, the situation is bad but not as worse as the 1990's slump...I would like to extend his deep thinking by adding "NYT"...which basically mean "now" in Finnish cryptonic language. So indeed we are not as bad in the 1990's because the we are not yet there but not far. I suppose everything is deteriorating month after month, at almost all levels except in the showbiz (from Madonna to politicians corruption show).

That's it for now..switch off "the internet" and get a rest.
And those who are stress about buying...just have a rest of a year or two and relax... there is a better thing than dreaming about putting yourself between 4 walls.