Housing and Demography

"At the end of 2010, the number of families with children totalled 582,000... the lowest figure ever recorded in the statistics, with a decline of 1,800 from the year before...

Twenty years ago in 1990, the total number of families with children was still 640,637, and approximately one half of the population were part of a family with children."

Source: Statistics Finland

The number of families is at historically low and lower than it was in 1990 - really astonishing!

A similar discussion on this subject had already occurred in the blog, refer to "Population Perspective"

Indeed, Finland is facing with very serious issues. family formation is on the decrease and is getting older. In the meantime, housing building permit had an exponential growth in the past two decades and price tripled. A real conundrum for assessing where the finnish economy is heading and particularly how the housing market will behave in the next two decades.

"The Thin" Capability, Maturity Integration ....

"Moody’s criticises Finland’s demands for Greek guarantees


US credit rating agency Moody’s told on Monday that the bilateral guarantee agreement between Finland and Greece could lower the Greek credit rating, and the credit ratings of other struggling eurozone countries.

The Finnish guarantee demands could also delay the second Greek bailout package and so lead to failure to pay, Moody’s added.

The agency expects the euro countries to reject the agreement between Finland and Greece."


I am actually shocked by the initiative launched by the finance minstry regarding the Greek guaranty. Not only it has been a showcase, where Finland lacked complete understanding and maturity on the Political european stage, but also endanger a fragile cohesion that is currently being tested within all the european countries.

I suppose it was driven by vanity and for domestic political gain- maybe even to reduce the popularity and the electorate size of the "the thin" party.

Deflation Forces, back Again in Finland.

Link
The chart above - the 2 years Finnish government bonds - shows that the yield (interest) has literally collapsed since July as if investors are panicking, ready to get almost no return or even paying for it (less than 1% when inflation is running at 4%) on those bond investment in return to investment safety. Sure they must be betting for deflation, they clearly foresee no inflation or worse deflation.

To me it looks like investors hint a recession in Europe - a deflationnary force that would be inline with the bond reading. In this context, It would be strange to see real estate price going up, or at least a last shoot up and a collapse. Actually, here is my forecast, from this point:

The bizarre situation is that in Germany, Finland, interest rates on 2 years are falling while in France, Italy, Spain and Portugal, yields are soaring. What can the ECB do? nothing really .

I am wondering how Finnish Pension Fund (Ilmarinen, Varma, etc...) will be able to cope in such environment, which would mean higher unemployment, low interest rates , lower stock price and rising retiree departure (which means income need to be provided, a promise made during the worker lifetime). Of course, this is based on the catastrophic scenario of Europe going back to recession.

Above is the chart of the 10 years Finnish Government Bond and a possible project on where yield could go. To me this chart is important, as it could show that the rebound in yield we say in the past two years (similar can be said to the economy
) was powder in the eyes, only supported by more debt and an artificially inducted confidence.

So should yield fall to the level of March 2009 or go lower than, we are a depression territory. Obviously this are only conjecture from a long time bear (since 2007), my negative view on debt binge and artificially supported economy has not changed, and more they fail to recognize the size of the problem , the bigger will be the fall and the negativity it will bring to the society as a whole (I'm still thinking of post 1929, and its far reached consequences - I'm just hoping they have learned their mistakes)

Finnish Housing Price - The Party is over?

Considering what is currently happening to the European Monetary vision, considering that Finnish Household indebtedness is showing worrying features, considering that housing price had double nationally since the beginning of the decade, (and even triple or quadruple locally). I think WE ARE ABOUT to witness an historic downturn for the housing and economy in Finland and in Europe as a whole - (and still holding my breath) - The party is about to end.

So far people have been spending, logically in sync with housing price rising, in a phenomenon called the wealth effect. People, sometime forget that housing price are cyclical, and are bound to go down after going up. So how the household will react when his wealth start shrinking, would he continue to take more debt, to spend more? The answer is simply no, based on what is currently happening in the US (high leverage household with falling house price, starting saving quite heavily).

Finnish Construction Sector - A Market View

A picture is worth a thousand words as the old banker wise once said. Above is the construction and engineering sector in Finland. Apparently the market is seeing a sharp slow down, something similar to the summer 2007 where a year after the housing market made a tentative readjustment.

Talking about the readjustment that did not happen in 2008, there are many reasons for that.

1- Interest rates tumble, literally fell in a free fall - helping interest rates sensitive mortgages, which represent above 90% of Finnish mortgages. To that, add also the record length of mortgages provided by bankers.

2-The current crisis (which we have yet to see the end) was a threat to the banks and the financial system as a whole. During that period, real estate was seen as a safeguard - at least money had to be parked somewhere perceived solid. The same was witnessed for Gold, Silver etc...

3-A relative game, North europe is seen as safer than the south in all possible dimensions, hence investment is rolling, fueling , even greater household leverage, that have been pilling up debts, as never witnessed before. to that extend, Banks had never stopped lending...

Nevertheless, the market is saying that the housing sector or construction sector is about to experience "something" not so good. A simple readjustment or an "Iconic Nokia" type readjustment that could bring price toward their 1996 prices. Time will tell.