Consumer Confidence - New York Times - Finnish Housing Price

"Helsinki’s housing market did not suffer greatly in the wake of the 2008 global economic crisis.

“First, there was no price bubble prior to 2008,” said Jukka Malila, the managing director and chief executive of the Central Federation of Finnish Real Estate Agencies.

“Secondly, Finnish people were initially frightened by collapsing banks abroad, but they realized they were not affected, as Finland is quite isolated, and went on living their lives as usual. So consumer confidence is high.”

Mr. Malila attributes Finland’s relatively levelheaded response to the downturn to the lessons learned in the early 1990s, when the collapse of its neighbor, the former Soviet Union, sent Finland’s economy into a steep recession.", NYTimes, May 2011

Interesting to see the confederation of Finnish real estate agent doing marketing on the New York page, sign of despair, sign of trying to support a housing market by trying to bring "dollar collapsing purchasing power" investors.

The housing market that has topped in the same way it did in the early 1990's but this time:

• Nokia is collapsing while at the time it was emerging as a global player
• The European Monetary Union is questioned while back then it was a savior (in 1996, Finland join ERM, and in 1999 the EMU)
• Emerging market were powering off, China and India economy exponential growth started...today both are struggling with slowing economy, high inflation and property price bubble.
• The active population is shrinking at record level due to historically high growth level of retiree population

So the situation is more dire than it was in term of future outlook.

In all cases, I wanted to highlight the timing of such article relative to the "consumer confidence" and the perfect timing of its release. It highlights somehow a knowledge of the deteriorating situation back then (in fact, we were in the mist of the Euro crisis, and a worsening of the financial crisis that started in 2008).

Now, this is what happen afterward....in December 2011, the Finnish consumer confidence has collapsed, approching its worst level made at the beginning of the financial crisis, and even worse than the IT Bubble of 2002. Here is the chart:

Merry Christmas!

Trees Don't Grow to the Sky

"The country(Finland)’s debt dynamics are far from unsustainable at this point, but given the weakening in the country’s export performance and the steady unwinding of the housing boom we can now anticipate I would expect growth to be weaker than either the EU or the IMF are currently anticipating, and pressure on the country to increase fiscal spending to maintain expectations to rise, with the implication that pressure on the Finnish spread over 10 year German bunds will continue, as the country risks drifting off from being part of the core towards the growing periphery, at least in the eyes of investors.

So finally, coming back to the ECB and movements in the policy rate, it could well be the case that perceptions about rising future interest rates played their part in encouraging individuals not to leverage their balance sheets further thus weakening the housing boom, but my feeling is that in the Finnish case the catalyst for the coming property implosion may not have been the recent 50 bps interest rate rises from the ECB, but rather the ongoing impact of the sovereign debt crisis on confidence, subsequently reinforced by the inbound shock from the recessionary wave now steadily sweeping Europe.", Source : Edward Hugh

A good article, I will encourage you to read...

On the Housing Trend...

Fitch Warns Nordic Countries Of Potential Crisis Unless Much Is Done To Bring Down Costs
Wednesday, 28 September 2011

Credit rating organisation, Fitch has warned the Nordic countries to put their acts together or face crisis in the nearest future.

In a report, Fitch described the Nordic countries of running an economy characterise by inflated housing prices, high household debt levels and over-sized banks compared to the size of their economies. These are risks in the Nordic countries, including Sweden, according to a new report from credit rating organisation, Fitch.

Among other points, Fitch analysts point that the major banks depend on short-term financing in foreign currency and a level of indebtedness among households that are among the highest in the world.

Countries specifically affected by the report are Sweden, Norway and Denmark as well as Finland which the organisation feels that they are living up to their top rating of AAA. Fitch gives these Nordic countries praised for its well-managed economies.

"Scandinavia has some of the world's most creditworthy states. However, some risk factors remain. It is especially in the housing sector and the market and banking system, "writes Douglas Renwick of Fitch in the report." Source

95% of Finland's mortgage are linked to variable rates, a very high rate compared to any country in Europe, meaning that the historically low level of interest rates has mostly impacted this little nordic country compare to the rest (in France or Germany most mortgage rate are linked to fix rates for the duration of the mortgage).

On another note, I had a discussion with an assistant secretary that was wondering how people could afford those prices, she could not understand. I told she was sane not as the people behind recents reports (Nordea etc...) and that price will go in only one direction and it is down. My arguments were based on the following:
1- interest rates cannot go lower i.e. in the future price will not be supported by lowering interest rates.
2- we are heading toward a recession in the coming year that has the potential to turn into a depression
3- 2012 will see a record number of layoff (many are on the pipeline : Nokia, NSN, and others as highlighted by some media )
4- 2008-2009 saw a record number of temporary layoff, with prospect that production will rampup after the slowdown. Today, temporary layoff seem not to be on the table as prospect are bleak.
5- China (see article), India are slowing down due to inflation threat, housing bubbles and export collapse.

Conclusion to the assistant : if you can wait one year before buying you should. If you find something that match exactly what you want and you can afford it and pay a premium on it (since price are all inflated) then you can take the risk. My last word: just wait another year at least - renting feels safer todays (see also article).
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Conclusion to "The Finns": Stop consuming - keep saving - a deflationnary trend is pointing its noise, then invest since thereafter politicians and economist will unleash whatever they can to fight it which will trigger the start of a ravaging inflation...you are warned.

On the Political Trend...

"Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.

Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April.

And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.", Krugman, NY times, December 2011

Just wondering when the economy start to drastically slowdown and unemployment rising, what would be the outcome?

By the way, Mr Krugman made a mistake in this article as now we know then as "The Finns" and not as "True Finns"...

In societies, where physical borders are slowly disappearing (taken over by virtual communities i.e Facebook, internet in general ), and where societies are more mix of different nationalities and religion - it is odd to still think that we can live in silo with "True citizen"...

Also refer to this article to see the very worrying development in Eastern Europe.

Rating Downgrades: The Euro Domino...

"The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “credit-watch negative”, meaning there is a one-in-two chance of a downgrade within 90 days."

Well, looks like a chain reaction is about to start... Finland is part of it. Well, when you see the household debt, your hair start to rise...and start to fall knowing that most of the debt is on variable rates tied to the Euribor. Just wondering is rates were to suddenly shoot up, what will be left to the banking sector and on the side to internal consumption (albeit declining with confidence flirting with historically low levels...)

I will summarize this week, the debt level , wage growth in the past few quarters to highlight the unsustainable situation.

In the meantime, keep consuming - you might be the last hope :-)

Pivot Point: 2012...a 1992 replay.

You may have noticed that this week large move occurred in the Finnish Government Government Bond (2 Year Bond below):


Since Summer, Finland seem to be the safe haven - Politicians and finance ministry have been glossing whenever they could that Finland is well managed, the economy is strong bla bla bla... the same broken tune...actually since a week something really got broken...

Maybe people realize that :

1- That the Finnish bond market is highly illiquid market hence volatile. When people see that inflation is becoming a threat or when they need the money asap (deleveraging i.e deflation force here), then all exit through the same door...and yield (interest rates) start to shoot up

2- Finland , whatever good economical and budget practices are made , remain a export oriented economy with an aging population and low immigration country. If the rest is sneezing, Finland get the Flu. Finland is not immune to the global slowdown or to an European slowdown.

So I have noticed a vague of layoff planned for 2012 by multiple of significant industry and company in Finland. The impact is going to be huge in term of employment and of course, our key focus housing price.

I bet, as I did in 2008 that the market will readjust except that this time I see little room for recovery as it did back then (due to mostly to global coordinated monetary and fiscal stimulus that resulted in a short spaced recovery). This time all the ammunition have been used or little is left. Of course, the central banker "magician" will make you think that it can make disappear all the problem - its an illusion, a confidence trick that has ran its course.

Be ready, the Mayan were right :-)..and of course the price will readjust by 2013 by at least 30%...if not then by 60% in the next 30 years a long slide similar to the japanese housing market: You were warned.

Let It Go!

The chart above is the 1 year yield of the Greek Government Bond.

Well the market believes it should default, or other nasty things... yet european politics seem confident they can resolve the problem.

Are the Greek issues a Lehman Brothers in the making? a predictable black swan?

ooops I Did It again: Britney Papandreou

Earthquake hitting Europe , the epicenter has been located in Greece.

Would the shockwave break the very "artificial" recovery and sink economies to the ground? answers...2012.

Housing Bubble Burst in China...overnight: 22% drop

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

The local media reports said an unspecified number of people were injured.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high.

The drop from 18,000 to 14,000 yuan is a 22% overnight drop and that is just a down payment on the carnage that is coming.

Source

While at the same time in Hong Kong the worse is to come during the period 2012-2013 according To Barclays Capital:

"Hong Kong’s residential property prices would drop by 35 percent to 45 percent over the next two years in the “hard landing” scenario of a deflationary economic environment, Barclays Capital Research said.

In a “soft landing,” continued mortgage rate increases and a slowing economy would drive prices 25 percent to 30 percent lower over 2012 and 2013, Andrew Lawrence and Vivien Chan, analysts at Barclays, wrote in a report dated today."

Source

EspoonKruunu Oy, Madness At Play ...

This article is to honor my barber. A nice single mother lady, always smiling and ready to put you in good mood.

As usual, we have a small chat of what is happening around the world she is in, made of customers of various background - the citizen of Finland.

Today, she cut my hair very well - she is a real professional and hard worker who do not speculate CDS or is short oil or wheat on the NYSE CBO stock market - a normal citizen from Finland.

She told me the following story. She had to move from the place she rents because EspooKruunu, a communal owned company ( of the republic of Finland) owner of the rivitalo (build in the 80's, 2 floor - 80 m2) , decided to renovate it. They also....

humm...also, kindly requested that the rent will be raised from 800 Eur to 1000 Eur. A 25% increase overnight.

Of course, a quarter or more of the renter of the same housing community decided to look somewhere else. To me, the action of the EspooKrunnu, deserve some attention, and the media should be a bit more critical of this kind of action.

In addition, to that State owned company playing with the rental market - you have also state pension fund heavily invested in real estate in rental market, easily setting the price to their wishes....

DISCLAIMER: All characters appearing in this work are NOT fictitious. Any resemblance to real persons, living or dead, is NOT coincidental. Believe me it is a true story.

2012 - The Liikanen-Mayan Forecast

In a hearing with the Finnish Parliament, Liikanen (Bank of Finland) stated that global economic growth for late 2011 and early 2012 was falling behind this summer’s projections. Liikanen emphasized that banks now need to preserve their own liquidity, securing additional capital from private sources.

to me it looks like Liikanen is telling to banks to get ready for the worse...

Full House or Flush, a poker lie?

Are house prices Safe As Houses? from Neil Monnery on Vimeo.

I am wondering what is the current housing price versus income in Suomi Finnland?

When you see that new flats put in the market are at over around 400 000 euro and that income are between 30-40000 euro/year, you wonder how long this house of card will sustain before we see the flip side of the coin. Maybe god is playing with dice, but it seems that down earth, people are playing a poker game...

On the trend of housing price

"It is a fallacy to think that loose monetary policy can solve the large structural problems we are facing. Central banks must not become the victims of their own success and should not become overburdened. Historically, whenever policy makers tried to broaden the role of monetary policy beyond its original role as a guardian of the value of a currency, it had to compromise on its objective of price stability. For monetary policy to remain effective, its responsibilities must remain within clear limits.

Instead, we need a growth model that is different from the one during the years before the financial crisis. We need economic growth that is based on a genuine increase in productivity, and not on low interest rates and the accumulation of debt. The unlimited accumulation of private and public debt before the financial crisis has now become a burden on economic growth and should be reduced progressively. [14] To achieve this we need far-reaching structural reforms that increase competition in labour and goods markets, more financial supervision, and a stronger fiscal policy framework.", Jurgen Stark, 24 Sept. 2011

I always liked Mr Stark, too bad he resign from the ECB executive Board.

One important thing, He is highlighting is that the crisis as show that private or public accumulation of debt as witnessed in the past 20 years is not sustainable.

It interesting, in fact, to see that the the crisis that started in 2007-2008 marked a turning point in the economical model we were accustomed. In particular, it is at that point I thought that the housing price rise driven by massive credit growth was put in question. Of course, it takes time before the trend reverse, you are dealing with "agents" that shift their behavior with a drastic lag.

Most people would not consider that price of housing will be lower than it is today in the year to come- it is not what they have been conditioned to.

Bankers still want to ride on easy-to-take profits at the expense of people, promoting all but a stable economy.

Real Estate are also accustomed to easy commission, easy sales and would not think that their industry would start to shrink in the year to come with plummeting commission and higher competition.