Finnish Housing Market : "The Age Of Turbulence"

(click on picture for zoom)

So today the "Statistics Department" has carefully laid the latest news on House prices.

They reported a sharp slowdown in the last quarter (0.4% ).

After 16 years of continuous growth, the historical housing "bull" is coming to an end and can turn into an historical housing "slump".

I can quite easily assure you that we have reached a peak,the question is not about if we are going to have a soft or hard landing but instead how hard the hard landing will be .

A soft landing requires a 30-40 % drop :

- current prices contains future price appreciation. This is unrealistic and need to be discounted. That's amount to 10%-20%.

-Private, real estate agency and media speculation have driven prices up in the range of 10% to 20%

-The Psychology has changed, owning house become equivalent of owner renter as the renter becomes the bank since the mortgage length has shifted to 30 or more years, strategy that was put in place to bring back artificially the affordability lower and create massive amount of mortgages.

-The global economy is slowing, not only in the US, but Europe is about to confront massive issues in Spain, UK, Ireland and Eastern Europe and it is facing a bigger threat then the U.S. . This is implying a very difficult 2009-2010 for the economy.

A hard landing scenario will imply 50-60% (or more) price drop:

-U.S. enters into a recession, worse than 1990 and 2001. It brings China and India into a recession (what we will call "The Great Chindia" recession). Political and economical situation weaken considerably and vulnerability rises sharply. We enter into an age of turbulence. Protectionism, social disturbance and poverty is on a sharp rise in the developed world.

-Inflation is raging, interest rate on a sharp increase will make having debt a big burden. Rent price is plummeting as unemployment is increasing. At the same time the population is getting older and the country sluggish productivity bring what we will call the "Japanese" or "German" syndrome : real estate falling for an indefinite period of time , and renting becoming more popular as ever.

A very (;->) hard landing scenario will imply 70-90% (or more) price drop:

Obama become president in 2009. An assassination on him bring month of turbulences as the U.S. is in the brink of a civil war.

Inflation is raging in Europe and right movements are on the rise. Political stability jeopardized, brings the economy into a depression.

Gold prise rise to levels not seen in generations. Paper money lose its credibility. Country after Country in Europe gain back their independence. The European Union is dismantled, stars after stars...

Disclaimer: This story or prediction is purely fictitious and any resemblance to any events, person living or dead is purely coincidental.

related : Prophet of the past , Previous Analysis

Societe General: Rogue Trader

"The fugitive trader behind the biggest fraud investigation in banking history is a 31-year old Frenchman called Jerome Kerviel."

"Kerviel was today alleged to have carried out a £3.6 billion banking fraud."

"The incredible sum lost by Société Générale, France's second biggest bank, dwarves the £827 million lost by British dealer Nick Leeson, who sank Barings Bank in 1995."

"Kerviel, who was responsible for plain vanilla futures hedging on European equity market indices, was today still at liberty."

"One close colleague of Mr Kerviel at SocGen told the Daily Telegraph: "We don't know where he is. He is not here, but we're not allowed to say anything." "

"And - despite the extraordinary sums involved - it emerged that news of Kerviel's alleged operation was covered up for a full three days after he was "grilled for six hours" by his bosses on Saturday night."

"After discovering inconsistencies in the the financial data in the bank's trading accounts on Saturday, the problem was tracked down to Kerviel."

"The bank liquidated the positions in the first three days of this week while the markets were tumbling."

"Admitting that the man had not yet even been fired, the beleaguered Société Générale Chairman and Chief Executive Daniel Bouton said: "If he escapes he will be found - there is no doubt about it." "

Looks like Societe Generale have found the perfect person to disguise their dirty investment made in sub prime. Finally they asked service from Hollywood for hiding a problem that seems to be mission impossible....

Source: Telegraph

Break News: The Fed is Cutting Rate 4.25% to 3.5%

WOW....an intermeeting rate cut...looks like the situation is out of control...

The Fed said incoming information indicated a deepening of the housing market slump and a softening of the labour market.

Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade. Today's reduction was the biggest since October 1984, when the central bank lowered the rate by 1.75 percentage point.

Federal Reserve Statement, 22 Jan 2008 :

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. "

"Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
"

"The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

"Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

Source: CNN , Bloomberg

"9/11" Stock Exchange Under Attack

This morning all stock exchanges have been under attack, targeted by profesional investors probably trained in Business Camp such as Harvard in the U.S. or Oxford U.K. .

Those places have been identified earlier for action commited in 1929 and 1987. They were monitored by the EIAIA agency and were risking sanctions such as unpluging their internet network...

Although after intelligence and media failure , 1.000.000.000.000 private shareholders were victims of these attacks.

Emergency UN "Financial" council was called to assess the response and decide whether or not to intervene. U.K. and U.S. decide not to intervene and seem to harbour the perpetrators. Evidence has shown that they were financed by them and paid large bonuses to cover the expenses.

Germany and France are calling for actions: Protectionisn and a stop to free market and delocalization.

Euro Area Bank Lending Survey: January 2008

"For the fourth quarter of 2007, banks also reported a further net tightening of credit standards for loans to households for house purchase (from 12% in the third quarter of 2007 to 21% in the fourth quarter of 2007)."

"In addition, credit standards for consumer credit and other lending to households were tightened (from -3% in the third quarter of 2007 to 10% in the fourth quarter of 2007), compared with a net easing of credit standards in the previous quarter."

"With regard to the demand for loans, banks reported that net demand for loans to enterprises remained slightly positive in the fourth quarter of 2007, albeit declining further compared with the previous quarter. "

"Net demand for loans to households for house purchase dropped considerably in the fourth quarter of 2007 and was significantly negative, and net demand for consumer credit and other lending to households also fell considerably over the same period, to negative levels, after a slightly positive demand in the third quarter of 2007."

Most households refrain or are postponing big purchases in the wake of an economic slowdown if not a recession.

In this view, households are starting saving and preparing themselves for harder times . Let's just hope that it's just a blip like in 1997 or 2001, a readjustment that is temporary not like the one in the late 80's ...

Also worth to note that banks are not willing to take risks when with doubt house prices have peaked. They need as well to rebuild their fragile balance sheet in the aftermath of the credit crisis.

Source: ECB

Stock Markets, Housing , Politics and Experts...

The stock markets around the world are experiencing a sharp correction. There are many reasons for that :

-Bets that the U.S. will enter into a recession are increasing, and could have a ripple effect into the global economy.

-Growth in the past 20 years have been sustained by a credit expansion and a rising property price. Same phenomenon seen in the late 80's. Debt is becoming a burden and people start to realize that they can't anymore live beyond their mean.

-Petrol, food shock start to bite and second round effect start to materialize. Higher salaries in many sectors have been concluded after series of Strikes especially in Finland. Competitiveness is plummeting and productivity is slowly starting to falter.

-Protectionism is rising, I'm sure every has been following the Nokia and the closure of the German factory. German Politicians start to get implicated and indirectly supporting protectionism measure in order to get the populist support.

-Polls have shown that environment is an important matter for the Finns. Political parties are then trying to leverage that in order to increase their popularity. Matti is the leader on that since He went and discuss with Arnold Schwarzenegger (damn it's hard to spell!) about environment... And the media, in a Berlusconi mind, are helping building the image of a Eco friendly minister (please revisit the article on Neste oil to get some insight). The link with the recession? bad leadership can bring an economy to a standstill, that might not directly apply to Finland but instead to the U.S. with Bush past years policies.

-Mass Retirement is changing the face of the economy. The "65 years old" population is increasing at a fast pace. Those category spend less especially in real estate. The baby "boomers" become the baby "buster" for the economy.

So is that all bad? history has shown that one place to be when we are in a recession is the stock market and not the housing market. The whole point is the timing. A stock market a highly liquid place (I'm not talking about emerging market here), this is different with the housing market.

Is it good time to invest in stock market now? I don't think so. I have highlighted beginning of January that stock markets will see a correction during the next 6 month and that emerging market are particularly vulnerable. This now happening. I recommended as well people to get out of Housing stocks in particular YIT. The share are now at 12.86 euro losing 25% from the call and it's only the beginning.

And then there is the brain washing media machine on full steam. Experts that you never heard of and were not around to warn before the 25% correction of the Helsinki Stock Exchange and the same "experts" will suddenly be silent when the times are good for investing in stock market as they were silent when time were good to invest in the housing market and when it has peaked there have been here to tell you that housing is a sure value...

The Ideal Home Buyer Will Be A Renter

The ideal home buyer now — in a reverse of what was true for years — is a renter who is not burdened with a house. Such a buyer will need a down payment from somewhere, and he or she will need enough income to meet the monthly payments for the foreseeable future, including any increase in adjustable rates that seems probable.

But not owning a home, which may be hard to sell, is a big plus.

A year ago, having a home that had appreciated in value meant that an owner could trade up to a more expensive home. Now it means that the homeowner cannot move until the old home is sold, and that is getting more difficult.

First, the seller has to find a buyer who can get a mortgage. Second, the price has to be high enough to pay off the old mortgage and leave enough cash for the down payment on a new home. Both were taken for granted a year ago. In many markets, neither is a sure thing now.

The Chain: Selling one house depends on the buyer’s selling another house, and that deal in turn depends on yet another sale, and so on and so on.

Indeed that's what we are seeing as the first time buyers affordability has plummeted down. At the moment the housing market is on thin ice, cracks have appeared and further evidence show that we are at a crucial time.

Therefore the real estate market is a place to avoid for the short to medium term at least until the chain is broken...

Wanted: Kiinteistömaailma Real Estate Agent

Myyntihinta	88 860,00€
Velaton myyntihinta	592 400,00€
Asuntotyyppi	Kerrostalo
Asumismuoto	omistus
Hoitovastike	311,85 €/kk
Vesimaksun peruste	14.00 EUR/kk
Tontin vuokra	Omistaja: Kesk. vak. yhtiö Etera

So what we have here is a misleading advertisement (from Oikotie) as it doesn't show the full price that the buyer will have to pay.

Not only the building is located on a rented land but one can buy it by just taking a loan of 88 900 euro from the Bank. Obviously that's not the price of the flat as the full price tag is 592 400 Euro or 870 235 Dollars. Charges and payment to the construction is what cost the most and is not shown.

Either the future buyers are living in an another planet or there is strange activities behind the scene.

Financial ministers around Europe are asking for more regulation and transparency. This is an example of advertisement that is deceiving any principles and needs to be strongly reviewed.

If people are buying at those prices then we will have the same type of spikes that we had in the 1990's in term of pricing. The issue is with neighborhood pricing, they will follow this irrational pricing.

Chart Of The Day: Housing Starts In The U.S.

"Builders in the U.S. broke ground in December on fewer houses than forecast, making 2007's decline in homebuilding the worst in almost three decades. "

"The 14 percent decrease to an annual rate of 1.006 million, the lowest since 1991, followed a 1.173 million pace the prior month, the Commerce Department said today in Washington. "

"For all of 2007, housing starts were down 25 percent, the biggest decline since 1980, to 1.354 million. "

"Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen as it enters a third year."

"Rising foreclosures will throw even more houses onto the market, hurting property values and threatening to push the economy into recession, economists said. "

So it will take a miracle or a little bit of luck for the U.S. to avoid a recession with such bad data ... Employment seem still strong but it's a lagging indicator. This year will be an inflection point...

Housing Stock: Up And Sharply Down

"U.K. real estate stocks may surge at least 20 percent in the first half as the Bank of England cuts interest rates in order to avert a recession, Morgan Stanley said."

" 'We expect a short, sharp counter-trend rally in U.K. property shares,' said Martin Allen, a London-based analyst at the bank, in a note to investors today. 'But we remain very bearish on a two-year view.' "

"Property-related shares could halve by the end of 2009 following the rally as a recession forces rents down and pushes highly leveraged investors into insolvency, Allen said. He expects the Bank of England to cut interest rates by 1 percentage point."

I think they call that a "Sucker Rally" , it's a rally that has no leg. So at some point Property stocks (we are not talking about property price) will rally up to a point when people realize that it doesn't make sense. The rally will start to lose steam and reverse gears... The same happened in the Technology stocks in 2000-2001 before being hammered.

If the US goes into a recession and is followed by UK and Europe, then indeed rents will go in one and only one direction on the way down... pushing housing price on the way down too.

The problem with that again is timing. The central bankers have a history of bailing out the reckless lenders and speculators as they did in 1987 and 1997 by cutting rate and witnessing 2-3 years after, a collapse of the system they helped inflate.

Would this time be the same?, central bankers cutting rate in 2008, injecting more air to the current asset bubble and make it collpase few year after (2009-2010) in a more tragique way? I guess the ECB knows that it should not cut rate but might be forced as they are unable to forecast an ever increasing complex economie with global ramifications.

But at the end, they will cut rate, and most probably before end of the year as history taught us. If they cut let's just hope that they are right in doing so and is putting a cushion to create a soft landing instead of throwing oil to the "inflation" fire...

Source: Bloomberg

Construction Cost Soaring : The Metro

"The planned extension of Helsinki's metro system west to Espoo is being jeopardised by rising costs. Construction of the extension is now estimated to reach 800 million euros. The state has promised to pay for one third of the cost, but the near doubling of the price tag could prove too much for the government."

"The Espoo City Council gave the go-ahead for the extension of the Metro in September 2006. At that time, the line from Ruoholahti in the west of Helsinki to Matinkylä was expected to cost 430 million euros."

"The approval of the project by the Espoo City Council was made conditional to a one-third contribution to the costs by the state. Now there are suspicions that the government and Parliament might balk at the prospect of granting 300 million euros to a transport project of one city."

The metro project idea to the west part of Espoo has been talked about for the past 20 years. As usual when construction is booming /has boomed then they decide to make such plan happen. You wonder why? it's not only the sheep phenomenon...

Maybe because west Espoo especially Tapiola is losing market share in term of consumers coming to the Tapiola Shopping center as competition with other malls has increased (Iso Omena and Sello Shopping centers).

At the end maybe the east and the west will join? but some are reluctant...

Source : YLE

Who Is Gambling?

"The Ministry of Social Affairs and Health wants a total ban on minors' gambling."

"A working group at the Ministry of Social Affairs and Health is proposing that teens under 18 years of age would be prohibited from playing slot machines, lotto and toto."

"The proposed amendment to the Lotteries Act is backed by efforts to prevent the harmful effects of gambling. At the moment, 15 year-olds can play slot machines and buy coupon games over the counter."

Either they are not well informed or they do it in purpose... Have you ever been to a place where those Ray Slots Machine are and have you seen the type of addicted customer behind them? Yes you have , and most of the time these are used by pensioners and by low income (in poorer area, you can find those slot machine almost everywhere).

So again they make the effort but miss the point or decide that the revenue generated by gambling outweigh the protection some need.

Another point to highlight , the EU had criticized Finland for having a closed Gambling Market as it is a state monopoly (same as ALKO) ...

On the other hand by targeting younger, it might reduce gambling addiction later in life...that has to be seen and demonstrated...

Source: YLE

UK Housing Market Worst Than 1992

"U.K. real-estate professionals said December was the worst month for the housing market since the aftermath of Britain's last recession in 1992."

" 'The housing market is in the throes of a significant correction,' said Richard McGuire, an economist at Royal Bank of Canada in London. 'We don't see a collapse, but there will be a pronounced downturn that will weigh on consumption.' "

We were looking for triggers , here is one: the UK housing Market. The English throughout Europe were known to be aggressive buyers. This has ended and with it speculative money flowing in Europe especially in France and Eastern Europe.

The Questions how bad it will hurt the UK consumption therefore the UK economy. According to the ECB President Jean Claude Trichet, UK counts more than the U.S. with regard to trade.

We all knew that it (slump in housing market) will happen but problem was to put a date and the extent of the correction. The date is now clear : 2008-2009. The correction 20-50%?

Source: Bloomberg

Related: What will be the trigger? UK

Chart Of The Day : Hypo Real Estate

Hypo Real Estate Group is a global leader in commercial real estate financing.

Hypo Real Estate Group is led by Hypo Real Estate Holding AG, a public company with headquarters in Munich, Germany.

Hypo Real Estate Holding AG had its biggest decline ever in Frankfurt trading after the German commercial property lender said pretax profit fell in 2007 and that it will cut its dividend. The shares tumbled as much as 38 percent.

"Of the fourth-quarter losses on its CDOs, 295 million euros were booked in the income statement, it said, while 95 million euros ``related to portfolio-based provisions'' were booked earlier."

"The company reiterated on Nov. 7 that it wasn't involved in retail residential lending and said it therefore has 'no direct subprime exposure.' "

" 'People thought the worst was already known, at least for the members of the DAX,' said Fidel Helmer, head of equity trading at Hauck & Aufhaeuser in Frankfurt. The private bank has the equivalent of $20 billion in assets under management. 'There might be more negative surprises when annual reports are due.' ''

" 'We can't rule it out,' Chief Financial Officer Markus Fell said when asked on a conference call whether there may be further writedowns on CDOs. "

The whole issue about the subprime mess is transparency.
Financial and Commercial institution have not revealed to the market the nasty investment they have made.

They profited of weaknesses and miscalculation that central bankers made in 2003 (by letting interest rates too low for too long that distorted real asset prices and saw an hyperbolic rise in loan lendings).

The "invisible hand" is back and slapping faces of CEOs that felt into incompetence, greed or corruptive behaviour.

The process of normalization has not finished yet , let's just hope that the casualties won't be the honest hard working citizens but instead some investors , lenders or banks.

Source: Bloomberg

Russians Investors Slowly Acquiring Saima Region

"The number of real estate transactions is growing sharply in the Saimaa region. Last year nearly one in three euros came from Russia in connection with the sales of lakefront properties in Southern Karelia and Southern Savo, while one in five shoreline plots were sold to foreigners."

"Over the period from 2005 to 2007, there was a tenfold increase in the total sales of shoreline plots and summer cottages to Russian buyers, growing from less than EUR 4 million to EUR 40 million."

"Typically, the best and most expensive properties end up in Russian hands. While Finns mostly buy cottages worth around EUR 80,000, foreigners are looking for well-equipped villas that carry a price-tag of more than EUR 250,000."

"Building engineer Tapio Nevalainen has put on the market a shorefront house in Lappeenranta, with an asking price of EUR 830,000. He says that most of the prospective buyers have come from the other side of the eastern border. "

"I would rather sell to a Finn, but eventually money talks", Nevalainen notes.

First I would like to give a prize to Mr NeValainen for hypocrisis...That remind me the story of this Scotish guy that didn't want to sell its land to Property Guru Trump who was planning a Golf resort... Indeed here, another example that money can buy everything even the soul...lately some in the society are losing true values such as being proud, respect and honesty for the sake of materialism and money.

Who said that Finland housing market didn't have speculation build in it? When speculation goes , the market is distorted... Even a Strong Euro doesn't protect the market...you wonder.

This shows you as well that Russia is becoming a wealthy and powerfull country. Its citizen under Putin leadership are experiencing a wave of change that might bring a difference in the economical and geopolitical rules. Russia has learned lessons from the past, has grown stronger and is ready with China to conquer the world (?)

Source: HS

Neste Oil, Government And Environmental Lies

Stavros Dimas, European Environment Commissioner, admitted in an interview on Monday that the EU had underestimated the dangers of causing food shortages and rainforest destruction by dictating a binding target for 10 per cent of all EU road fuels to come from "green" sources by 2020.

"We have seen that the environmental problems caused by biofuels and also the social problems are bigger than we thought they were. So we have to move very carefully," he said.

In the US, the biofuels industry is simply another farm support program and demand for corn-based fuels has helped drive up grain prices across the world and Brazil and Indonesia - the world's third and fourth biggest emitters of greenhouse gases - have increased deforestation to increase lucrative production in sugar cane and palm oil - both used to make biofuels.

Neste Oil, the third largest company in Finland with a 50.1 percent government stake, is coming up with bio-diesel plant and wants to become the world leader bio-diesel producer.

Neste oil plans to produce 800.000 tonnes of biodiesel per year from Malaysian palm oil

Greenpeace intervened, (where is the finnish green party? inexistent in the most polite way), by flagging this biofuel as "rain forest fuel". The Finnish government and Neste oil are aware of the lifetime damage it causes to the deforestation in South east Asia. It's Unbelievable from a country that is supposed to care about forest to have taken this path...

Sweden OKQ8, a filling station chain, froze the negotiation with Neste oil under the pressure of Greenpeace.

The politicians have never been so bad in playing the lying game. Pushing oil and co2 taxes on one hand, in the other helping destroying a fragile ecosystem. At the same time, the global warming has never been felt so strongly in Finland...So let's look for new leaders that are able to pass the right reforms and are not afraid to lose power in favour of a better society and world.

EU Against Finnish State Car Tax Scheme

"The European commission has taken legal action at the European Court of Justice against Finland's car taxation scheme, saying parts of the Finnish Car Tax Act and the Value Added Tax Act clash with EU legislation, the Finnish government said in a statement Tuesday."

"The action is about the Finnish practice of levying VAT on car tax-inclusive prices of vehicles and the right to write off said tax against business expenses subject to VAT."

"Further, the commission takes issue with Finnish regulations on establishing the taxable value of cars that are less than six months old, though this part of the Car Tax Act has already been amended."

"The basic flaw in the Finnish system from the Commission's point of view is that companies are allowed to deduct the non-VAT from their corporate taxes, but private individuals are not allowed a corresponding deduction in their income tax."

"Under present Finnish legislation, the non-VAT applies to new cars as well, and car dealers can make a corresponding deduction from their corporate taxes. The Commission feels that the non-VAT should not be deductible as if it were VAT. "

"Such a decision would also make it cheaper for Finns to import used cars in the future. "

"Losing the case would force Finland to thoroughly overhaul its car tax system. "

"Finland is expected to submit its response by 25 February."

So since the government prefers to be behing car dealers instead of the citizen as well as being in the incapacity to fully reform the Car taxation scheme and is keeping tax burdens on the shoulder of the Finnish citizens, the matter is now to be handled by a third party namely the European Commision.

I hope that they will bring the car tax inline with other european country or remove VAT tricks and are willing to save the Finnish citizens thousands of euros. And not try to help the retailers by giving 10% tax present indiretly to them when the citizen has seen the credit cost rise by over 10% in the past one year, taking the consumer for fools... at least for the one who are not aware or can't afford to pay cash...

Source: STT, HS

Housing, Stock , China, India : 'all on the downside'

"European Central Bank council member Michael Bonello said inflation may moderate toward the bank's target by the end of the year as oil prices decline and economic growth slows. "

"The economic outlook is 'surrounded by considerable uncertainty'' and growth risks are 'all on the downside,' " Bonello said in an interview in Malta on Jan. 11.

"If commodity prices retreat as expected, 'then I think the projections that we have for inflation coming down again close to 2 percent by the end of the year could very well materialize.' "

Interest rate might go down by the end of the year...I think it's clear that the golden era is behind us. U.S. is entering or is already in recession. India and China Economical Growth has peaked and is entering into a readjustment phase. Finally, global housing is readjusting...

House prices have peaked and will fall , synchronized with the fall of interest rates as they have always done in the past.

Stock markets around the world will see a correction in the next 6 months. Although some corrections will be severe as in India and China; some will know, somewhat, a mild correction i.e the US and Europe.

As I started this year blog with an article describing 2008 as the year of the Tsunami (which referred, indirectly, to the global housing correction to come), it will be fair to call it as well the year of the "Nano Dragon". Dragon referring to China and Nano to India Tata nano car. Combining then gives the idea that some emerging economy such as India and China that started to be considered as the dominant will be seen weak and finally only having a "Nano" position or effect in the global Economy in the short and medium term.

For some it will bring back the reminders of Japan in the late 80's, a giant that everybody thought will dominate the world economy, went into it's knees for the past 20 years...

Indeed when the U.S and Europe Sneeze the rest of the world catch a cold....

Coming back to housing, interestingly enough when house price and interest rate rises then every body is buying... on the other hand , as we will witness, when prices and interest rates will be falling, nobody will be buying, depressing even more the housing market.

Source: Bloomberg

Joke Of The Day

"Riihimäki police in southern Finland said Friday they had seized what amounted to a cannabis farm inside a caravan parked near a lake in the rural municipality of Loppi."

"The police took away 60 cannabis plants, enough for about 1.5kg of marijuana."

"The police added the suspect called himself "The Prophet" and had come to Loppi from the capital region."

The "Prophet" should review its forecasting method...as it didn't see then coming. Nevertheless if it's for personal use, I guess it won't get much, or would he? Regarding that, I would like to see the police going after the ones that sell more dangerous substance as ...alcohol...maybe they should go into ALKO and arrest the owner...

Building Costs Going through the Roof

"Construction costs in December rose by 5.6 percent compared with a year earlier."

"Labour costs rose by 4.3 percent while prices for materials shot up by 6.3 percent. Other costs rose by six percent, Statistics Finland reported on Friday."

"However there were some signs of slowing growth in expenses. The month-on-month increase from November to December last year was just one tenth of a percentage point. "

"Labour costs edged up by 0.1 percent and other costs by 0.8 percent, but building material expenses actually declined by 0.1 percent."

My opinion is that office real estate bubble is draining all resources and pushes capacity to its limit.

The construction industry has learned the wrong lesson from the 90's . The money has now been redirected to the commercial real estate, and far too much money has gone there...

Music Center: YLE Quits

"The Finnish Broadcasting Company (YLE) confirmed at an extraordinary meeting between the shareholders of a holding company on Thursday that it would not extend its participation in the mired Helsinki Music Centre construction project."

"Although YLE will continue to be a shareholder in the company, the decision leaves a gaping whole in the funding of the Music Centre, with the government having pledged to fund half and Helsinki a quarter of the costs."

"Private investors are hoped to take YLE's place. The public broadcaster, which wishes to lease some of the building, has yet to reach agreement with potential investors."

YLE quit because it's expensive to buy anything build today. YLE story is just another sign highlighting the "illness" in the housing market in general. A doctor will say : "Irrational" is the patient state and he will add "maybe it's in terminal phase unless a shock treatment is applied". Indeed a therapie is needed to erase 10 years of Euphoria. The US is now going through that therapie...

Nevertheless let's watch whether the government is ready to inject more money in Music instead in much needed hospital or road infrastructure...

Source: STT

Estonia : Say "Cheese" To Inflation

"Cheese"

"Food prices in the Estonian capital are rapidly overtaking those north of the Gulf of Finland, with cheese among the 14 out of 44 items included in an EU study costing more in Tallinn than in Helsinki."

"According to the study, made public Thursday, a number of other dairy products as well as eggs, beef fillet and chocolate cost more in Tallinn than in Helsinki."

"Over the past six months, the price of food has risen by more than 20 per cent in Tallinn, compared with a rate of increase of six per cent in Helsinki."

It's all relative...still this way of communicating information is misleading. A Six percent food price increase is big! especially if it's a trend. The situation in Estonia is desperate. They should fire the finance minister, one who was criticizing the EU which was recommanding Estonia to be vigilant about inflation about 1,5 year ago. He ignore the calls and the estonia people are now paying the price.

Finland has ignored calls for housing and land reforms from the OECD, the country have already paid the price last autumn by very high wage agreement triggering an inflation not seen since 2001.

Source: STT

Swedish Housing Price : 2008 "Judgment Time"?

"Swedish house prices have increased by an impressive 130% in real terms over the last 10 years".

"Our colleagues David Miles and Vladimir Pillonca estimate that slightly more than 50 percentage points of this increase can be attributed to expectations of further increases in house prices, while only around 30 percentage points can be put down to the reduction in real interest rates."

"At the same time, household indebtedness as a proportion of disposable income has reached 140% (see the Riksbank’s latest Financial Stability Report)."

"In 2H07 house prices ground to a halt; if the housing market goes into reverse, household balance sheets will be affected substantially."

I think the same can be applied to any Nordic country...

Source: Morgan Stanley

Land Speculation : "Don't worry, Be Happy"

Who don't remember Bobby McFerrin song (with some addition):

"Don't worry be happy
In every land we are speculating
When you worry you make it double
Don't worry, be happy......"
until the government wakes up...at last?

"Raising property tax rates may ease the Finnish capital region's housing woes by encouraging private owners to sell land for home construction, according to a study made public on Tuesday."

"Commissioned by the government, research company Kaupunkitutkimus looked at problems afflicting the region's housing market."

"The study found that there was an abundance of land available for housing construction but that landowners were sitting on it as they expected prices to rise further."

"According to the study, raising the property tax rate by one percentage point may achieve a 15-per cent increase in housing construction."

I repeat again this was a call made by many organizations 3 to 4 years ago and the government didn't react. Now they are reactive when they should have been pro active. Indeed they are completely behind the curve...

Source: STT, McFerrin lyrics

Inflation : "Reverse Engineering" And Finnish Housing Market

(HICP Housing Finland : Just Click on it to see bigger picture)

So in November Statistics Finland has published a figure of 2.9% for the inflation. Yesterday they revised this figure to 2.2 % based on a new index, a reverse engineering exercise I have to say. What can you do? nothing just get used to the new index...:

"Revision to the publishing of 14.12.2007. The inflation calculated with the Harmonised Index of Consumer Prices (HICP) has been revised 8.1.2008 for November in Finland."

"According to the preliminary data on the Harmonized Index of Consumer Prices, the rate of inflation in the member states of the EMU was in November 3,0 per cent. It was 2.6 per cent in October. The corresponding figure for Finland was 2,21per cent in November."

The main image, shows the Finnish HICP for Housing , indicates clearly a slowdown in price growth: a 3% year on year growth. Still too high and still need to be readjusted. This year, if not in the next decade, will see a readjustment downward by a few percent every year : the so called "soft landing".

If the economy contract as suggested by the bond market and now by the stock market, the readjustment will be more painful.

Source: Statistics Finland, Eurostat HICP Housing , Eurostat HICP short guide

Clinton, New Hampshire : All Bet Are Open

How great the woman conditions has evolved in the past 50 years.
The odd of having a Woman president of the most powerful country is increasing...
Hilary Clinton seems to follow the step of her husband, former U.S President. Let's hope for her the best, she deserves it and she is very talented.

Finland has a Woman president but she is completely powerless as she is just representing the country and does not really make any decision. There was even a parliament discussion in order to reduce her mandate... That is the same way in the U.K. Where "Flash" Gordon has the power and the queen being a tourist attraction (although an expensive one)

Obama did well too, finishing second.

All that said, it looks like the U.S. will have a democrat president. The Republican are doing very badly thanks to Bush political and economical past actions. Gulliani is still trying to ride on the "Fear" strategy, that doesn't work...people have been so brain washed in the past 5 years that now they clearly understand the "cheat" game and are immune to lies the media and republican were/are throwing at them.

Higher Tax on Unbuild Land, When?

"The Finnish capital region's labour shortage is to a large extent caused by expensive housing and transport, Pellerve Economic Research Institute (PTT) said in a report Tuesday."

I quite often disagree with the view of PTT that has somehow strong conflicts of interest in what they have said in the past. Nevertheless this time I could not agree more with what they are saying.

Indeed housing, transport, heating and food is becoming very expensive. Buying or Renting has never been so expensive in any historical comparison.

"The thinktank, funded by farmers' unions, added people were discovered from moving to the region because they were often better off unemployed outside it than working in it."

"The researchers who contributed to the report said part of the solution would be to raise the tax on unbuilt land and boost the supply of rental housing with temporary subsidies in the capital region."

I have been raising this subject long time ago. Unbuilt land should be Highly taxed and not used as a speculative instrument. The government has been dragging its feet on that while it was clearly highlighted to them by the OECD on a report few years ago .

In any episode of Land price boom, it has been always been followed by a bust. This will not be a different time.

Source : STT
Related : municipalities land

Luxury Flat In Helsinki, Who Wants Them?

"A number of new luxury flats recently built in Helsinki are still waiting for a buyer, as well as dozens more that are nearing completion."

It tells you as well that at some point oversupply is going to shoot up drastically and inventory is building up with no signs of stopping...

"In spite of the apparent oversupply, real estate agents and builders remain confident in continued demand for prime real estate. Hundreds of new dwellings are to be built in the coming years near Helsinki's waterfront areas."

They know as well that it all depends on the state of the economy and on the banks willing to lend and take risk. I think the latter have proven weak or is deteriorating...

"Close to ten homes in luxury row houses built on the shore in Herttoniemi remain vacant, and work another ten is expected to finish soon."

"A change has taken place in recent months in the market for luxury apartments, says Eljas Repo, editor in chief of Arvoasunto, a specialist publication for real estate investors.
'Price levels have come down, and buyers have become more cautious.' Eljas Repo says that the unsold apartments in Eiranranta are clearly speak of a change in the market for high-priced homes."

Indeed time has changed, even people flush with money don't see it as a good investment or maybe because they are preparing themselves for difficult time?

"Nina Uitto, CEO of the Kiinteistömaailma Bulevardi agency disagrees.
Uitto says that old luxury apartments are selling well, and that not all of those that are available are ever advertised in public. "

So luxury apartments that are not advertised to the public are selling better than the one advertised...I think Nina Uitto should go for a career in politics, she has all the ingredients to become a great one... Ms Nina, time has changed and you should seriously think about consolidation otherwise banks will start knocking at your company door sooner than you expect...

Source: HS
Related: Eiraranta Flat

ECB : "Unusually High Growth Rates"

Developments in the real estate sector

"Let me conclude with some remarks on residential property prices. As with other asset prices, residential property prices are closely monitored by the ECB in terms of our economic analysis..."

"We do monitor asset prices closely because of the potentially high costs for price stability and for the economy as a whole that are associated with strong appreciations and rapid reversals in asset prices..."

"In terms of recent developments in the euro area real estate sector, the latest available data on house prices appears to support the notion of a cooling in euro area housing market developments after a prolonged period of unusually high growth rates in many euro area countries."

"That said house price growth generally remains relatively elevated in the euro area on average when seen in historical perspective – notwithstanding considerable heterogeneity in underlying country developments."

"The outlook for the euro area as a whole - I insist, for the euro area as a whole - remains that of a relatively soft landing. Within this context, a continued moderation of residential investment would also be likely."

If there is something to highlight is that credit growth to household for housing purchase has exploded and has been growing at a double digit in the past few years. The ECB is aware about that but can't officially target any asset bubble since the consequences are unknown and its impact out of control (since unable to assess the side effects.).

As former US Federal Reserve Chairman Alan Greenspan said, it's better to act after the bubble deflate. This was demonstrated with the Technology bubble of 2000, acting in 2001 by aggressively cutting interest rate and on the way creating another bubble (the US housing bubble as currently witnessing and that is now deflating).

After all nobody knows for sure what is the correct price for an asset and nobody can surely identify a bubble until it deflates...

Source : ECB (last chapter)

Estonia : 1990 Replay ?

"There are further signs of a slump in the Estonian housing market as last year figures showed that sales of homes have sharply slowdown."

"This year the trend will continue with a possibility of recession in the shadow. Some people are already struggling to meet their mortgage payment and the number of repossession is on the rise."

"House price have been declining and according to a local economical newspaper, the situation will still continue through 2008 and 2009."

Source : Kauppalehti
Related: Baltics, the trigger?

Breaking News : Hiring in the U.S. Slowed More Than Forecast

"Hiring in the U.S. slowed more than forecast in December and unemployment jumped to a two-year high, raising the odds the Federal Reserve will need to cut interest rates by half a point this month to ward off a recession."

"The pace of job creation was at its slowest since August 2003 and it was far below economists' forecasts of 70,000, and November's 115,000 figure."

"Payrolls rose by 18,000, the least since August 2003, after a 115,000 gain in November that was larger than initially reported, the Labor Department said today in Washington. The jobless rate rose to 5.0 percent from 4.7 percent in November. "

Doesn't look great for stock markets around the world. This time we will be testing the "Decoupling" theory i.e the Emerging Markets becoming the engine instead of the U.S.

Also to notice Japan Stock market dropped 4% this morning , the biggest drop on record...

Usually recession is not a good thing for the housing market, so its impact will depend on the amplitudes of the recession and its length...

Source : Bloomberg

"I Have A Dream..."

So Barak Obama is heading to become the next U.S. president, this will bring a radical change in the American leadership. U.S. will move from its predatory state toward a more human face. The gap between the very rich and the Middle class will shrink... so going back to more sustainable pace for a "ship" boosted by unrealistic foundation...

I have a dream..., Martin Luther King Jr , 28 August 1963 :

"I have a dream that one day this nation will rise up and live out the true meaning of its creed: 'We hold these truths to be self-evident: that all men are created equal.' "

"I have a dream that one day on the red hills of Georgia the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood."

"I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice."

"I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character."

"I have a dream today."

So Obama will bring some change at the heart of the political and economical system. Like a shock wave it will spread to other countries... The economy will change too and its impact on all markets...

Europe Inflation Means ECB Rate Cut Unlikely

We have been use, in the past decade, to a low inflation. That's history... Everyday we are breaking record level in almost all prices, just name it : Oil, Gas, Electricity, Wheat, Services etc.. etc... The purchasing power is being eroded and with it the mandate that the ECB had promised to its 400 millions citizens.

"Record oil prices and continuing high food costs kept eurozone inflation at 3.1% in December, the European Central Bank (ECB) has said."

"Finnish consumer prices rose by 2.9 per cent year-on-year in November, compared with an October inflation rate of 2.7 per cent, Statistics Finland (SF) said in a statement."

"Spanish inflation accelerated in December well ahead of expectations, preliminary data from the National Statistics Institute . The European Union-harmonized index of consumer prices rose 4.3 percent on the year in December, compared with a 4.1 percent annual increase in November."

"Consumer confidence in France unexpectedly dropped to a 19-month low in December after inflation accelerated on rising energy costs. French consumer prices rose at an annual rate of 2.6 percent in November, up from 2.1 percent in October"

"Swiss inflation unexpectedly accelerated to the fastest pace in more than 12 years in December, led by higher energy costs. Consumer prices increased 2 percent from a year earlier after rising 1.8 percent in November, the Federal Statistics Office in Neuchatel said today. That's the highest rate since October 1995."

"Germany got the second top ranking despite a 2.2 percent inflation rate, its highest in 13 years (since 1995), according to the German Federal Statistics Office. The higher inflation rate is due to price increases on energy, fuel and food products."

So cutting European interest rates is out of the question for the moment. However if the European economy start to fall into a recession mid 2008 then inflation might not be any more an issue and rate cut will follow...

CRAMO sees a slowdown

"Finnish machinery rental firm Cramo expects to grow in all of its markets in 2008, despite a slowdown in residential construction, Chief Executive Vesa Koivula said."

That's not what the shareholders or investors are saying. The Cramo share went from 38 euro peak to 17 euro low so more than 50 % loss...

"The global financial market shake-up has hit the residential construction sector in Finland and Estonia, Koivula said, but added that growth in its civil engineering services and non-residential construction would minimize the impact."

We know that slowdown in housing construction and lending has nothing to do with the financial meltdown in the US. If lending is slowing, it's simply that affordability has been hit hard after interest rate almost double within a year and an half.

"Despite the changes in the financial markets, with the present forecast for the construction market development, we have still good momentum to grow," he told Reuters in an interview late on Monday.

It's like a heavy train with full speed that suddenly has its engine broken (no more debt), it will still have enough momentum to give the impression that it's moving...but slowly the inertia is being lost and will come to a sharp slowdown....

Source: Reuters

Are they Nuts?

"Petrol and diesel tax hikes introduced in Finland at the start of the year have been transferred to consumer prices almost fully"

"Alcohol taxes were raised in Finland at the beginning of 2008. Starting from Tuesday the tax on strong alcoholic beverages was increased by 15 per cent and taxes on mild alcoholic beverages went up by 10 per cent."

That's how the government is kicking the new year by raising taxes. When Oil price reach an historical 100$ per barrel, it's crazy or irresponsible to raise tax on petrol. Yesterday, it was shocking to see the following prices at the pump : 1.45 euro for petrol and 1.22 euro for diesel engine.

Are they nuts? do they want to sink the consumers? Right, on one hand the consumers are heavy loaded under debt but on the other the government is offloading its debt :

"The Finnish government cut national debt by almost three billion euros last year
Strong economic growth and an increase in tax revenues and fees for public services have helped in reducing debt."

"A total of 93 local authorities have raised their income tax rates by half a percentage point or more, which means a net increase in the tax burden in spite of cuts in state taxes."

"Matti Vanhanen is now exhorting labour market organisations to think of the travel cards as a method of preventing climate change by the time of the next round of global climate talks in 2009.".
Is he thinking that the public is "dumb"? that's amazing ... So Finland is going to help preventing climate change by government policies.... It's a wake up call, next time please elect smart people.... US, China and India are the biggest polluters..so if they want to do something about climate change they better have a European strategy and use their diplomatic and economical muscles to make those irresponsible to act and act quickly.

Source: Petrol tax , Government debt , YLE Municipalities , Matti's travel card

2008, The Year Of The Tsunami?

"A slowdown rather than an outright recession is likely,'' said former Bank of England policy maker Willem Buiter, speaking in an interview on BBC Radio 4 today. "We're talking about the need to have a significant correction in the housing market and in the financial sector. That will be painful. That will be unpleasant. It will not be a disaster.''

Coming from a former Bank of England policy maker, it carries some weight, it stamps further the assumptions that 2008 will see a "nasty" correction for the UK Market.

For Finland, you just have to be aware of many signs that are highlighting the cracks that start to appear... like a mild earthquake announcing a tsunami to come... Real estate agents will demonstrate you that you can still sing and dance on the beach. You have been warned. I would advise to find a cover, a high spot and just watch the ravage unfold.... Right let's first try to save as many as we can, after all that's what this blog is all about.... Happy New Year!

Related: UK House Price Declining , Finnish House Price Declining , Housing builders
Source: Bloomberg