Finnish Housing Bubble

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 "Housing prices generally react fairly sensitively to fluctuations in interest rates. The recent uncertainty on the international financial markets has increased the Euribor rates on noncollateralised interbank loans in the euro area."

"This affects the interest rates on the housing loans of Finnish households, since the Euribor rates are quite commonly used as their reference rates."

"According to the forecast assumptions based on market expectations, short-term interest rates will in the next few years be higher than in recent years on average, and the growth rate of housing prices is forecast to slow further, from about 6% this year to around 2-3% in 2008-2009."

"A further rise in house prices is nevertheless suggested by continued favourable development of household income and employment."

So if you haven't read my article regarding "the prophet of the past", you should. But in any case if the prediction goes as planned, it would mean that maybe the peak will be reach by 2009. in 2008-2009, in real term it would mean that house price won't grow any further for the next 2 years as inflation is predicted to be around 2-3 % too (although the common people will tell that inflation they see is over 10%)

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This appellative is obviously not intended to be a compliment but rather a criticism for not being able to predict the future.

Some background:

-1929: The Great Depression (also known in the U.K. as the Great Slump) was a dramatic, worldwide economic downturn beginning in some countries as early as 1928

-2001-2002: Finland plunge into a recession. Technology shares slumped.

-2007: US Housing Slump, the real estate bubble burst. Interest rate were 5.25% in August 2007.

-2007: Euro interest rates rose from 2% (December 2005) to 4% (November 2007).

Some predictions: 

"There is no Bubble to burst (US)" - Jim Folkman, Vice President Home Builders Association of Central New Mexico, 23 Sept. 2005 

"An actual price bubble cannot be seen on the Finnish housing market, and sudden changes on the price level are not in sight." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

"The idea that we are going to see a collapse in the housing market seem improbable (US)" - John Snow, US Treasury secretary, 20 Sept. 2005

"US FED continues to increase the interest rates gradually towards a “neutral” level... 3.5 percent." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

"At present, there are no grounds (For the ECB) either to raise or lower the interest rates." - Tapiola Group Senior Economist Jari Järvinen, 22 Jun.2005

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"Finnish estate agents believe the rate of increase of home prices will slow down and sale times lengthen, real estate company Kiinteistömaailma quoted its survey as saying on Monday."

"Almost half of the respondents said they saw flat home prices within the next six months while a third believed prices would rise by a maximum of three per cent."

"Kiinteistömaailma interviewed 560 estate agents across Finland."

Coming from a real estate agent, you can bet that it means that price will go down in the years to come.
Regarding the sentence "Human being,  Human being..." it was taken from a real  advertisement from Kiinteistömaailma.

Let just cross the fingers and hope all for the best. Below is the analysis from Thomson financial reagrding a survey done in finland last week: 

"The boom in the Finnish construction market looks to be nearing an end as demand for housing eases and labour shortages drive up costs, figures released today suggest."

"Developers, it noted, have reported an increase in the number of unsold flats on their books. One of them, YIT, last week cut the number of residential unit builds it expects to start up in Finland next year to 2,300 from its projection of 2,700 made three months ago."
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The Finnish Broadcasting Company (YLE) said Friday it would exit the Helsinki Music Centre project because the costs had spiralled out of control.

YLE added on its website it preferred to be a tenant in the building instead of owning part of it.

YLE gives as the reason for its withdrawal its poor economic state and the steady rise in construction costs.
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The Confederation of Finnish Industries (EK) said in a statement Thursday that its latest business tendency survey indicated that the country's economy was beginning to leave the peak of the economic cycle behind it.

Leif Fagernäs, the chief executive of the EU, said that although uncertainty was on the rise there was no steep turn for the worse on the horizon.

In construction, the boom has continued. There is still a substantial shortage of labour and costs have increased considerably. The number of unsold flats has grown significantly. The construction boom is expected to cool down somewhat. 

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Swedish construction company NCC AB reported a third quarter profit after financials of 814 mln skr, down 9.6 pct from a year earlier hit by weakness at the company's property development division.

"The company's other divisions experienced a mainly positive quarter although Finland remained flattish. NCC said it is taking longer to sell newly built housing units in Finland and also to some extent in Latvia."

 'Prospects for 2008 appear favourable in the markets in which NCC is active, despite expectations that growth will be lower than in 2007. However uncertainty has increased somewhat concerning the trend in the housing market compared with the market assessment published in the six month report,' said NCC.

For those who are not aware of the flat price evolution throughout the past, you will learn that housing price follow a cyclical pattern. Boom are always been followed by bust. 

Like in the previous boom, we had two price growth phase that lasted 10 years: 1979 until 1989 with a stabilization level established during the period of 1982-1986.

Similarly, we have had a boom that lasted (?) 10 years: 1997 until 2007 with a stabilization try around 2001-2003.

Now we have technically 5 possible scenarios.
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The sky is the limit: when will the frenzy stop or when the bubble start to deflate?

Statistic of finland published a report on housing price in the third quarter of 2007 :
"Dwelling transactions remained lively in July to September:

According to preliminary data, prices of dwellings rose during the third quarter of 2007. The prices of dwellings in old blocks of flats rose by an average of 0.7 per cent in the whole country, when compared with the previous quarter. Prices went up by 0.7 per cent in Greater Helsinki and by 0.8 per cent in the rest of Finland. These data derive from the statistics on the prices of dwellings compiled by Statistics Finland on the basis of the Tax Administration's data. Preliminary data comprise roughly two-thirds of the transactions in dwellings in old blocks of flats and in terraced housing." 

Prices are usually a lagging indicator of housing market conditions, coming down only after home sales decline and inventories rise. With the latter two trends already clearly established, I might have expected to see more outright price declines by this point rather than simply a moderation of the rate of increase.
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"Finnish consumers expect that the pace of price rises will increase. The latest consumer survey by Statistics Finland shows most people believe that prices will rise by more than 3% over the next few months.

Consumers have not voiced expectations of such a sharp rise in prices for a decade.

Consumer have remained confident in the economy. While still solid, it has weakened slightly, however, as in October the consumer confidence indicator stood at 17.3, having been 18.5 in September and 20.3 in August."

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People think that it's still unfavourable time to rise a loan according to statistique of Finland. Two consecutive negative months figure show that the housing market is pretty stretch.

"In October, 46 per cent of consumers regarded the time good for raising a loan. One year ago the respective proportion was 64 per cent. Nevertheless, 13 per cent of households were planning to raise a loan within one year.
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Shortage of land pushes housing costs to among highest in Europe.

In Belgium, for instance, which has twice as many inhabitants as in Finland, although the whole country is smaller than the Province of South Finland, people live in cheaper and more spacious accommodation than in Finland.  In Finland, the population is increasingly gravitating toward the Helsinki region and other urban growth centres.

"We are getting near the point where ordinary wage-earners can no longer afford to live in the Helsinki region", says Anja Mäkeläinen, managing director of the building and housing construction foundation Asuntosäätio.

The high costs are getting to be an impediment for middle-income service sector professionals, such as nurses and bus drivers, to live in the Helsinki region
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YLE, a Finnish state channel, has shown on prime time a report on the state of the housing in Finland. 

Watch the YLE Video (in finnish, but there are some nice Charts...)

In any case, Finland is not insulated as it is a global phenomenon.

Today in the US the number of existing home sales reach the 1999 level and still worse is coming.
"Sales of existing home sales in the US plummeted last month to their lowest annual rate since records began.This was the lowest level since figures on single-family homes and condo sales were collected in 1999...The so-called "jumbo mortgages" - loans which are over $417,000, have dried up. High-cost areas like California, where buyers are reliant on these mortgages, have therefore been hit hard.", reported the guardian.
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... or how to create "sub primes" in mass. 

The question of express credit is the under the looking glass of a Ministry of Justice working party. It will examine legislative ways to reduce problems resulting from credit granted, for example, via mobile phone services.  

Current legislation does not place any responsibility on the credit agent to identify the applicant. Some express loans have been obtained, for instance, via the mobile phone of a parent or relative.

The law neither requires that the total annual credit interest be revealed to applicants. Usually, those requesting a quick loan are informed of only handling and office charges. Consumers often face considerable difficulties in determining the total cost of a loan.
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