Finnish Housing Market Peak Reached

"The stock of housing loans extended to households by MFIs amounted to EUR 63.5 billion at the end of March, with an average interest rate of 5.00%."

"The annual growth rate of the housing loan stock declined to 11.9%, down from 12.2% in February. "

"The annual growth rate of the corporate loan stock has risen clearly in recent months, accelerating to 16.1% in March, compared with 13.5% in February and 11.8% in January. "

According to the Bank of Finland, there is a clear deceleration on the housing loan front but a clear overheating on the business side, a clear sign of the end of a cycle.

Finnish Real Estate Plunging?

"The growth in the prices of old apartments has calmed down and even dropped slightly in some areas, the union of real estate agents said in a statement Wednesday.

According to the union the sales times of apartments have grown longer and at the beginning of the year were on average 65 days.

Buyers are now more careful due to rising interest rates, economic uncertainties and concerns about the future."

Buyers , if there are still left, are concerned about house price not about interest rates. Let me remind you that interest rates a 4% , is still a low rate when you observe the inflation pressure comming from all directions : food rise, oil rise, salary rise in emerging market, currency appreciation in emerging market.

People will be fool to think that interest rates will go back to the 2% reached in 2003. This is something from the past. At best interest rates will fall to 3% in 2009 if you have a global economical deceleration with UK, US , Spain, Ireland and Italy falling into recession in 2008 followed by Finland, Sweden, Danmark in 2009...then maybe rate will fall to 3% .

Now what would that mean to the housing market? well people will be better off having cash instead of an illiquid asset during recession time. Price will come down with a risk of a sharp downturn if the recession transforms itself into a depression monster. After it will be known sometime in the second half, during that time we will see if US and UK will be plunging in their worst recession ever seen by the current generation.

Bleak or black, the outlook could turn green or red, it's all depends on how much greed has been poured in the past 5 years... This time the swan might turn into the ugly duck...

48% Rise in Debt and Claim Cases

"The payment problems associated with consumer credit loans and instant loans are increasing at a brisk pace in Finland.

In 2007, Finnish district courts made a record number of decisions relating to cases involving debts and other claims.

The number of such cases was more than 113,000, which was higher than ever before in the past 20 years and more. When comparing with the previous year, the growth is as much as 48 per cent.
Moreover, the figures have doubled over the past ten years.

In some experts’ view, the increasing number of problems relating to debt collection is a sign of an upcoming recession.

”It is possible that debt collection becomes more active prior to a recession period, when companies are trying to collect all the money they can before individuals with payment difficulties are driven to insolvency”, says Antero Nuotto from the Helsinki District Court. "

You really wonder how and why people are able to accumulated so much debt. Finland is behaving in completely different way compared to continental Europe where a slow down in credit has already been perceived.

You can clearly see it on residential housing, where banks have not put any brake in lending money to people for buying an asset that is clearly inflated. Why do they do that? do they think they are smarter or are they just pushing people into trouble for profiting of the situation later??

Government : Pretty Bad Privacy

...Stupid like a fox...

"The government on Thursday approved a proposal to change Finland's Data Protection Act to help companies prevent leakage of corporate secrets."

"If the amendment is passed by Parliament, at the beginning of next year companies will under certain circumstances be able to look at the addresses to which employee e-mails have been sent, for example."

So If people are stupid indeed they will be using the company email service to send corporate secret...

Are the people behind this law stupid (...like a fox)?

Second point, are they, as well, going to monitor emails send through google Gmail, Yahoo mail, hotmail etc...? are they going to ban employees access to those email providers from internet access?

if they really want to protect corporate secret then they will need to :

1-forbid any internet access

2-remove any cd/disk drive

3-remove any USB port

4-disable printers

5-disallow the use of mobile phone or digital camera

6-body check each person when they finnish their work

7-check people social connections, monitor phone calls

8- Make sure that the email storage are located in the company own network

Then maybe corporate secret won't go to the "evil" competitor.

Taxi Driver : The Best Indicator?

(Taxi fare growth)

Usually it's either the barbers that are acting as the "canary in the coal mine" (or parrot in some cases) or the the taxi drivers. For example, back in 2000, my barber was advising me on what to buy in the stock market, she acted as a specialist. Nowdays , she advises on housing...

Today, this role is clearly being taken over by the taxi drivers.

In 2001, prices sharply went up and we add a recession.
In 2008, prices sharply went up and what are we going to have?

Rear Mirror : Housing and Economy

"The outlook for the Finnish building sector still looks positive, concluded a statement by the Confederation of Finnish Construction Industries (RT)."

"RT expects the construction industry to grow by four per cent this year, even though there will be a ten per cent reduction in new housing projects."

"However, the reduction in new projects will be reflected in the figures for 2009, when the construction industry growth rate is expected to fall to 1.5 per cent."

After Nordea, now the Construction Industries are warning of a sharp slowdown in 2009. what you are currently seeing is the image of the rear mirror, that shows a booming economy. In the current and forward view, the economy and housing are slowing down and will even further in 2009-2010.

The housing growth is something from the past or an image of that rear mirror and if you look carefully you will see reverted growth...that's the forward forecast.

Insider Trading?

- 22.4.2008 at 13:43

The state of Finland has sold all its shares in Finnish telecommunications operator Elisa, the prime minister's office reported on Tuesday.

The Finnish state owned a 0.65 per cent slice of Elisa's share capital, which it sold for 18.1 million euros.

-22.4.2008 at 16:02 Elisa publish the interim report: share was trading down 14% at 13:76 euro

Revenue was negatively affected by 2007 revenue adjustment of mobile segment, approximately EUR 7 million. This was due to correction of 2007 revenue estimate of delayed customer billing.

This information/story, events or physical or virtuel entities represented in this article are purely fictuous any similarities with real entities is purely coincidental especially ones refering to the government- The author as well as any commentators decline any responsabilities described in this document/article.

The ECB Inflation Mandate and the Poor

Here is a clear message to the ECB: Follow your mandate carefully otherwise you might push government to deal with social unrest. Inflation is the first threat to the poor or the fragile one (elderly and the future poor: the unemployed).

Food price (wheat, rice) , petrol, electricity, rent are increasing at an alarming rate while at the same time wages, adjusted to inflation, are NOT following up for the vast majority. (I have to say some earn already a lot and give themselves generous rise on behalf of the citizen : see thin and fat article )

The problem can already be seen in Finland and the U.S. (see this article).



"Increasing numbers of people in the Helsinki region and other areas have been queueing up for free food."

"The need is considerable in the Helsinki region, but in recent times we have been contacted from other parts of the country, where there are reports of a need", Hursti, a private volunteer who distributes food in Helsinki, says.

Nordea Economic Outlook

"The pace of activity in the housing market has also normalised and households have become more cautious."

"The number of unsold new homes has increased and construction companies have cut down their production."

"Residential investment will decrease markedly this year."

"In Finland the rise in prices has been more moderate than, say, in the other Nordic countries, but a calmer period of a few years seems natural after an uptrend lasting several years."

Nordea starts to be pessimistic with regard to the economic outlook and housing market. Their pessimism should be analysed as a worrying fact.

Clearly, if the credit and confidence crisis continue, its impact are beyond any crisis seen in the past 30 years thus making the last recession as shallow one. After all, the last recession was the trigger for housing price acceleration as interest rates were mistakenly pushed too low.

AsuntoKupla 2 : Land Price Overheating

"The rising price of food has led to an increase in arable land prices in Finland. For example in the region of Pirkanmaa, prices for farmland are around 10 percent higher than they were last year."
"Prices have reached as high as 15,000 euros for a hectare of land."

"More people are investing in land because they believe the price of wheat will remain high. Meanwhile, Agrifood Research Finland (MTT) says it's seen signs of an overheated market."

Wheat is expensive: because the supply is low and the demand high. High Wheat price push investors to increases the production of wheat and the allocation of arable lands. The supply increases dramatically thus leading to an oversupply and pushes price lower: Wheat become cheap.

That's the typical story of boom and bust applied to wheat... This could be applied to the housing market since the supply is already starting to be greater than the demand. In the case of agriculture, the weather is an important element that can make the supply volatile. In the case of housing, it's the economy, bank loan supply, credit standard and unemployment.

All in all , any asset price soon or later comes back to its equilibrium state. The question to ask would be what is the fundamental price? and how long it will take to reach it?

Up Up ...the next move?

" European Central Bank council member Axel Weber said the bank will assess whether current interest rates are high enough to contain "intolerably" high inflation.

Recent wage dynamics in conjuncture with elevated and persistent energy and food price pressures have increased the risk of a prolonged period of intolerably high inflation,'' Weber said in a speech today in Frankfurt. ``We will have to continuously monitor closely all incoming data and evaluate whether the current level of interest rates in fact ensures'' price stability.

Weber is the second ECB policy maker this week to suggest that the bank's next step is more likely to be a rate increase than a cut. Surging food and energy prices pushed euro-region inflation to 3.6 percent in March, more than initially estimated and the fastest pace in almost 16 years, the European Union's statistics office said yesterday. "

That could be big.."up up" for the interest rates which would automatically mean "down down" for the housing price...just logical.

Imagine that the ECB embark into rising interest rates instead of decreasing them. The impact would be absolutely disastrous for the housing market.

I think it's more rethorics than real.

On the other hand, in Finland we have clearly signs of second-round effect materializing, so there is ground for Bank of Finland to be worried.

Asuntokupla : Finland, Sweden and Denmark

Scandinavian property markets have enjoyed explosive growth over the last decade. Since 1995, property prices have climbed by an average of 12% in Denmark and by nearly 8% (per year) in Finland and Sweden.

Between 1995 and 2007, prices soared by nearly 300% in Denmark and by approximately 150% in Sweden and Finland. This trend coincided with a steady increase in residential investment which accelerated in tandem with the economic upturn that started showing through from 2004 onwards.

As a result, the construction sector’s contribution to economic growth in Scandinavia – both directly, in terms of increased demand via residential investment, and indirectly, though higher employment – has been massive, especially since 2004.

Furthermore, it would appear that what will probably prove to be a hard landing for the Scandinavian property market is already underway. Structural indicators are in negative territory, in contrast to the situation in 2000-2002 when the economic slowdown was short lived.


Scandinavian households had substantial recourse to credit in order to buy their own homes. Apart from the downward blip between 2001 and 2002, growth rates in lending to households have exceeded 10% over the last ten years. The trend was underpinned by historically low levels of interest rates in 2003/2005.

Household indebtedness topped the levels recorded before the late 1980s crisis: almost 250% of gross disposable income in Denmark and 150% in Sweden. Borrowing on this scale now looks unsustainable. As a result of monetary tightening – the process took place somewhat late in the day: i.e. in 2005 - interest charges rose (rates on home loans stood at 5% in most Scandinavian countries in January 2008 vs. 3% to 3.50% in 2005).

This not only increased the cost of new loans but also pushed up the cost of honouring existing debts as an extremely high percentage of home loans had been taken out at variable rates: 40% in, Sweden and Denmark and 90% in Finland.

This problem has recently been compounded by the current financial crisis which has led to an increase in bank financing costs and, by the same token, to tougher lending conditions.

A close watch needs to be kept on the indicator that measures growth in home loans. This indicator rose to an all-time high in the first quarter of 2006 but has since been retreating slowly. On a short term view, a more substantial loss of momentum is to be expected.


Residential construction market trends leave no doubt that the housing market has started to run out of steam. Housing starts (compound 12-month figures) fell by 30% and 37% yoy respectively in Q2 and Q3 in Denmark, by 9% in Q2 in Finland and by 34% in Q4 in Sweden.

The end of government measures to support the construction industry in these countries does much to explain the sharp downward swing.

That said, the underlying trend is equally discouraging. The reversal of trend is well underway in Denmark and Finland. The movement is particularly palpable in Denmark where the tide has been turning since the second quarter of 2007: prices tumbled by 5.1% and 8.7% respectively in Q2 and Q3.

Although prices are still rising in Finland, the pace slowed from 7% to 5% yoy between the first and fourth quarters of 2007.

The property market recession in prospect will have significant implications for Scandinavian economies as a whole. Firstly, the percentage of GDP accounted for by residential investment has risen sharply since the mid-1990s, notably in Finland and in Denmark.

This means that the contraction of household residential investment will have a direct negative impact on growth. The signs have already started filtering though: in the second half of 2007, residential investment fell by 1.8% and 1% respectively in Denmark and Finland. From this year onwards, all three countries are likely to be affected.

Secondly, the impact on the job market will be considerable. In Denmark, the percentage of total employment accounted for by the construction sector rose from 4.8% to 5.9% between 1996 and
2006. Moreover, this sector was responsible for almost 20% of job creations over the same period. The trend was similar in Sweden and Finland: the construction sector accounted for more than 15% of job creations between 1996 and 2006).

As Denmark’s property market is the most vulnerable, the correction in this country is likely to be the most severe. Finland and, to an even greater extent, Sweden are less at risk but are nonetheless on course for a property market recession.

Second-round Effects Materializing

10 January 2008 : "The ECB was "prepared to act pre-emptively so that second-round effects and upside risks to price stability over the medium term do not materialise," "

26 March 2008 :"ECB President Jean-Claude Trichet said March 26 it's ``imperative'' to avoid ``second-round effects,'' a term that describes attempts to offset higher costs for items such as food and energy through bigger pay or price increases."

15 April 2008 : "According to Statistics Finland, year-on-year growth in the same period of 2006-07 had been 5.2 percent. Pay rose in all sectors. The briskest growth was in construction, where wages were up by 11.1 percent from a year earlier.

Wages climbed almost as steeply in private health care and social services (10.5 percent) and financial services (10.3 percent). Even in sectors where growth was moderate, there was still considerable improvement in paycheques. Growth was the slowest in private-sector educational services, where pay was up by 6.2 percent."

That's it.

Second round effect have materialized. It's irreversible. It means that high inflation in Finland is here to stay...at least until the next recession (2009-2011?) restabilize the economy.

What does that mean?

Loss of competitiveness, loss of purchasing power for the ones who cannot bargain wage higher.

The outcome?

Sluggish growth ahead with high risk of a deeper slump.

Why?

As contruction cost goes higher so do housing prices. As house prices go higher, less buyers are attracted. As Buyers vanish, less contruction is made. Construction company are less profitable and start to cut cost. Unemployment in construction sector start to increase. (you will see a sudden increase of taxi drivers)

As salaries goes higher in public sector, the government debt increase. As debt increase, the government is less flexible in reducing income tax. Other tax or public service start to increase to compensate.

As private healthcare increase their fee due to rising employee wage, consumers start to see their purchasing power decreasing as more money is needed to service private and public healthcare (public as the queue to get any service will shoot up). If their purchasing power goes down then the local economy will be affected.

So what does that mean overall? interest rates will have to stay high. Housing construction and price will go down, albeit slowly but surely. The risk of a bigger downturn will increase if inflation and loss of competitiveness is spiraling out of control.

Source: Statistic Finland

Related : second-round effects?

~4%

"Finland's inflation rate rose to 3.9 per cent in March, Statistics Finland reported in a statement on Monday. The inflation rate is increasing fast, as February's year-on-year figure for consumer price change was 3.7 per cent."

"Inflation was pushed up most in the year by risen prices of housing. The rise was due to higher prices of energy, risen housing loan interest rates and real estate prices as well as rent increases. Inflation was also pushed up by increases in the prices of food, automotive fuels, restaurant and café services and retail prices of alcoholic beverages from the year before."

Back in September, when i started this blog,I warned that prices were going out of control. Finnish Economist, politicians and banks didn't really think so when reading them through the news or statements. Those people are clearly behind the curve and were not able to predict the fact that inflation is now threatening the stability of our economy. The first casualties will be hard assets such as housing.

Indeed, high inflation if persistent would mean higher interest rates at some point while salary are pressured lower (something never experienced before).

You didn't have to be a genius to see that letting interest too low has created a period of unusually cheap credit that is now affecting the real economy globally through higher prices in any commodities : food, oil etc... in fact anything (except electronics , cars? maybe not as it's relatively expensive here in Finland)

Unfortunately for Finland, the ECB is targeting Germany, France and Italy inflation. Thus letting Finland on its own and most probably pushing it into a prolonged period of sluggish growth. The impact is going to be felt socially by raising tension toward immigrants, first casualties in a slowdown. It will be followed by loss of competitiveness if second round effect materialize plunging even deeper the slump.

Housing price were adjusted in 2003-2004 with the idea that we will live in a prolonged period of low interest rates. Imminent economist in Finland stamped that theory. Unfortunately it's all wrong. Globalization side effects were not taken into account in setting up this "perfect" scenario. So prices are indeed between 10% to 40% overvalued. And as the readers pointed out in the survey (on the right of the blog), prices could fall by 30% by 2010 which is getting more realistic as time goes.