Owner: Finland Housing Bubble URL:http://housingfinland.expat-blog.net/ Join Date: Tue, 09 Oct 2007 02:23:24 -0500 Rating:0 Site Description: -Asset Bubble: Price of any type of accommodations (kerrostalo, paritalo, rivitalo, omakotitalo) are overwhelmingly overvalued.
Yet no one seems to be worry about the level of prices. Why is that? Are people uninformed? have income followed the surge of Site statistics:Click here
Housing bubble in Finland 2007-10-07 13:47:42 Why a blog in Finnish housing buble?Asset BubblePrice of any type of accommodations (kerrostalo, paritalo, rivitalo, omakotitalo) are overwhelmingly overvalued.Yet no one seems to be worry about the level of prices. Why is that? Are people ignorant? have income followed the surge of housing price? are we running short of land? the construction industry is slow to produce houses/flats?-Throughout this blog we will try to gather evidence on why we are currently in a bubble that is about to deflate.Psychology bubbleIn fact many factors have contributed to the current housing bubble we are witnessing today. Who has never heard about people telling that "You are wasting money by renting. Housing
price has gone up and will always. Housing is a sure investment. You haven't bought?", it tells a lot about how deep it is anchored in people mind that buying a house, today, will make your life better and will be a good investment. We will try demistify that.This blog will try as well Read more:Finland
Housing price evolution 2007-10-07 13:45:21 This chart has been retrieved from "Statistique Finland" which has based its input on agreed transaction as registered in the banking system. It's clear that price
are overvalued, the issue is to know by how much?In the chart I have put few references, (A) and (B) are probable price equilibrium. (B') being a very optimistic, unrealistic price equilibrium (we will come back to that case).(A) is an historical price equilibrium, from that price would be 60% overvalued(B) is a more recent price equilibrium, that has hold true through the mild recession of 2001. At this point price would have come to (A) if the system wasn't flush of money (easy credit, low interest rate, psychology). Even that the price would be 40% overvalued.(B') the most optimistic price equilibrium that basecally says that low interest rate are here to stay. Some suggested that Home Prices had just normalized to reflect the next 10-20 years low interest rate and inflation Read more:Housing
Our finnish sub-prime 2007-10-07 12:48:28 I have always wondered why nobody in the press raised the alarm with the type of business certain big construction company/ Real estate agents were doing.Let me tell the fact:Myyntihinta50 856,75€ (1) Velaton myyntihinta339 000,00€Asuntotyyppi Kerrostalo Asumismuoto omistusYhtiövastike1 230,72 €/kkHoitovastike262,50 €/kkRahoitusvastike968,22 €/kkLyhennykset alkavat v. 2011 = 4,85€/osake/kk (2)So you allow someone to get a loan through a bank since the amount required (1) is 50 856,75€ and the rest is a loan under the term of the construction company (2). That's where the drama is:You will be paying a loan that has been fixed for 3 years at a low interest rate and will reset at about 2 times the fixed one. In some other similar cases. The arrangement says that you will only pay the "interest rate only" on the loan during those 3 years then it reset to full payment... Some mathematics: 1 - I take a loan Read more:prime
Renting vs Buying 2007-10-07 09:30:14 It's always interesting to see how economist view the situation on renting:In 2005 Tapiola Bank’s Review of Business Conditions 3/2005 "The housing market is calming down. It seems however, that the housing market is going through a distinct structural change. Owning has become more popular than renting. "In 2007 Tapiola Bank’s Review of Business Conditions 1/2007 "Renting
is again a worthy alternative to owning. – Rents have not climbed as strong as the owner-occupied apartment prices"Within 2 years there is a strong shift in sentiment regarding renting from the economist point of view.Does that hold? some figures should eliminate any confusion, let's take concrete examples :BUYING : buying a flat in kallio at 168 000,00€ for 44 m2Bank loan Read more:Buying
OECD on Finland's housing market 2007-10-07 08:46:16 Finland
's housing market
: reducing risks and improving policies This article was published in May 2006 , at the time interest rate were still low and GDP growth at record high. While pronounced cycles in house prices have been a major cause of macroeconomic
instability in the past, current house price developments do not yet suggest an
overheating of the housing market. However, several important concerns are
related to both direct effects of housing markets on overall activity and to
more structural and regional issues. A factor making housing markets and the
macro economy vulnerable to interest-rate shocks is the high share of mortgage
loans linked to variable interest rates. Tax subsidies to housing may largely be
capitalised in higher land prices rather than increasing housing availability to
the extent that slow planning procedures and municipalities' unwillingness to
provide building land have limited the growth of the housing stock in growth
regions. This
Finnish banks have too lax mortgage practices 2007-10-07 05:48:49 "Finland's Financial Supervision (Rata) said in a statement on Monday 05 December 2005 that it was
worried about the country's banks
granting mortgages to customers unable to
produce a down payment and lacking financial backing."That was back in 2005. There were plenty of warning signs that have been completely ignored during the last 2 years. The financial system completely ignored the recommendation and went into granting loan to almost anybody (no savings, high level of debt relative to income, to young that just have their first job and no savings) and quite often over the value of the house itself (adding to the loan : Car, motor bike, boat, holiday etc...). But then as recent as in September 2007, the FSA -Finland's Financial Supervision Authority is denying any wrong doing of the bank system: "The FSA added a mortgage crisis similar to the current one in the US could not
happen in Finland because unlike in the US, Finnish
lenders were required
Helsinki rental apartments too expensive for students 2007-10-16 07:20:46 An increasingly small proportion of students at Helsinki
University are able to live in apartments rented on the open market, reports a survey on penny-pinching carried out for the Student Union of the University of Helsinki (HYY).Students are now unable to compete in the wild and unregulated rentals market - at least not in the Greater Helsinki area.The reason is a steepling increase in rents, particular in rents for bedsitter type apartments.Since the end of the 1990s, rental prices per square metre have gone up by around 23%, while grant and student benefit funding has been largely untouched.Only 23 per cent of Helsinki University students who answered the survey live in apartments rented on the free market, while the figure for the rest of the country is double this, at 47 per cent."This summer, the queues to get int
Buying at the Top .... 2007-10-16 06:39:21 Here is an article that was first published in 2002. So you have to put it into perspective... There are five words guaranteed to freeze the blood of most prospective home buyers: "You're buying at the top." Sure, mortgage rates are at historic lows, but if you're on the hunt for a home in areas where housing prices have soared, you face a dilemma: If a housing bubble exists, as some have suggested, you risk paying top dollar for something that may drop in value; if we're not in a bubble and home prices continue to climb, you feel pressure to buy now before you're priced out of the market. When you're putting your money on the line, sleeping on nails is more relaxing than making this kind of call. So maybe it would help to confront your worst fears. (And then realize why all is not necessarily doom and gloom even if you do pay top dollar.) Worst-case scenariosOkay, here it is, your home-buying nightmare: Prices plummet in your new neighbor Read more:Buying
Inflation driven by Housing costs 2007-10-15 00:15:57 The year-on-year change in consumer prices, i.e. inflation, calculated by Statistics Finland stood at 2.6 per cent in September 2007. The figure for August was 2.3%Factors behind the rise in housing costs were higher mortgage interest rates, higher tariffs for renovation work and an increase in rents.So after all, it doesn't come as a surprise to see all the current wage negotiation failing mainly caused by this rate of inflation at this level (even accelarating next year). Inflation
starts to show his "ugly head" and bite hard in the disposable income.Unless you renegotiate your salary at a minimum of 3 %, you are getting poorer. Housing
affordability is dropping as people have to spend more in other items.Thousands of Nurses Sign on to Proposed
What is a Housing Bubble? 2007-10-14 23:00:52 Housing
price bubblesPrice movements generated in the market due to the self-fulfilling prophecies of market participants are often called “bubbles“ to denote their dependence on events that are extraneous to the market. The idea that bubbles might exist is often traced to J. M. Keynes’s (1936) description of an equity market as an environment in which speculators anticipate “what average opinion expects average opinion to be“, rather than focusing on things fundamental to the market.In the literature (e.g. Flood and Hodrick) a bubble is characterised as a certain type of deviation from equilibrium price based on fundamental factors. In the case of housing market, the market fundamental price is the equilibrium price based on income, employment, real interest rate etc. A deviation of the current market price of the asset from the value implied by Read more:Bubble
, Housing Bubble
Bank lending survey for the Euro area October 2007 2007-10-11 23:20:57 THE RESULTS OF THE OCTOBER 2007 BANK LENDING SURVEY FOR THE EURO AREA (source: ECB)As regards loans to households for house purchase, banks reported a tightening of credit standards in the third quarter of 2007, following a slight net easing in the previous quarter.Net demand for loans to households for house purchase remained significantly negative in the third quarter of 2007 as a result of a deterioration in housing market prospects and worsening consumer confidence. For the fourth quarter of 2007, banks expect a further tightening of credit standards applied to loans for house purchase and a further deterioration in net demand for loans to households for house purchase.With regard to credit standards for consumer credit and other lending to households, banks reported a slight net easing of credit standards in the third quarter of 2007, compared with basical Read more:October
Back to the future : 1990 2007-10-11 06:16:13 From 1950s to the early 1980s, real housing prices in
Finland grew at approximately 4 percent per year. However, the 1980s
and early 1990s were different. From 1987 to 1989, housing prices almost doubled, but by the second quarter of 1992, prices fell by 50 percent compared with the peak in 1989. The
volatility in real estate prices was only one of the key events that
affected real estate markets during this period. Interest rates were
deregulated, and floating-rate loans became the primary loan
type for residential housin. Concurrently, the Finnish government
changed the tax system, government subsidy, and government price
support techniques (e.g most rent controls were abolished in early
1992).Low interest rates encouraged households to purchase homes
and finance their purchases with debt. Concurrently, inflation rates
were high. Given the low nominal interest rates an
Jump in number of unsold homes 2007-10-11 00:49:52 Jump in number of unsold homes outside Finnish capital area(source: http://www.rakennuslehti.fi/, October 2007)A "Crazy" jump or a readjustment of a disequilibrium?The percentage of unsold homes beyond the Finnish capital area has risen to 22 from about 10 in January, Finnish construction industry paper Rakennuslehti quoted a survey as saying on Thursday.STH-Group surveyed construction and home sales in eight areas outside the capital area. Out of the 4,625 homes for sale or under construction, 1,016 remained unsold at the end of last month.During the past 4 months, the stock of unsold house jumped by 46%. The number of unsold stock is approaching the record level reached in 1990.
Mortgage holders exposed to mounting risks 2007-10-09 23:57:49 Mortgage
holders exposed
to mounting risksIndebted households are increasingly vulnerable to risks. More than 30% of Finnish households, and 60% of families with children, have housing loans.Banks are granting large long-term loans (20–30 years) to personal customers with poor repayment capacity. In addition, banks may extend unsecured card credits to households that have already run into debt.During inspections, the FIN-FSA has noted that collateral, and not customers' repayment capacity, too often seems to have played the major role for banks' decisions to grant loans. In evaluating requests for loans, banks calculate customers' cash flow coverage ratio but the programs available often set living expenses too low. The loan amounts granted are frequently so large that customers are left with no buffers for unforeseen expense. Could the symptoms in the US housing market spread to Finland?According to the latest available information, the situation in the US hous
Bank of Finland predicts slower growth and rising inflation 2007-10-09 07:37:20 The Bank of Finland
predicts that economic growth in Finland will be slower, and inflation will increase in Finland over the next two years.Factors behind the slowdown include weaker prospects abroad, and rising interest rates, which increase debt servicing costs of companies and consumers.Erkki Liikanen, the Governor of the Bank of Finland, also said that economic prospects could take a downturn if the unrest that emerged on financial markets in August continues and grows stronger. He also predicts that the rise in housing prices should slow down from the present six per cent annually to between two and three per cent. Mr Liikanen is predicting a soft landing for the housing market, at least adjusted to inflation (with inflation bumping over 2-3 % over the next 2 years), he is basically saying that price have reach a plateau. 0% growth for the next 2 years in the best case. That's a good news for the one who were stressing about buying because price will not be rising any m
Real Estate Market Cools Down 2007-10-09 04:12:36 Real EstateMarket
Cools DownLonger waiting periods for selling a flat are making both buyers and sellers of real estate more cautious. The Mortgage Society of Finland is warning people of the risk of becoming trapped between two homes. The Mortgage Society is advising prospective buyers to sell their old apartments before attempting to buy new ones."It seems wise to sell off old property before investing large sums of money," says Mika Tulimaa, who followed a piece of old-fashioned advice and rented a flat while waiting for his old home to be sold. Meanwhile, in the city of Oulu, cancellations on new building sites are up by fifty percent. The most common reason for this is that people have not been able to sell their old homes. Agents draw attention to the importance of the price-quality ratio. If a flat is in good condition and the price is reasonable, a buyer can turn up very quickly. Overpriced apartments will naturally stay on the market the longest. However, the bigges Read more:Real Estate
2003 Nordea Warned of a possible Bubble. 2007-10-19 01:42:12 Nordea
view in 2003: "Even though housing prices in Finland have risen at a faster rate than people's earnings, a possible price reduction seems very unlikely, surmises the Nordea banking group. Housing prices are rather expected to continue on their upward trend. The longer the interest level remains low, the greater is the risk of overpricing and a bubble in the residential market, Nordea economists have warned."My Comment in 2007: Indeed interest rates had remained low for too long then started to rise aggressively beginning of 2006. Nordea knew about the consequences but has been aggressively lending in the past 3 years. It won't be fair not to highlight that other Finnish banks did the same, competition was very elevated and lending standard decreased."The "adjustable" Finns": "Finland differs radically from its neighbours (Nordic Countri Read more:Bubble
Housing alternatives and costs in Helsinki 2007-10-19 01:30:55 Back in the beginning of 2006 , rent vs ownershipAccording to the ministry of the interior web site : http://www.eukn.org/finland The article is based on Markku Lankinen’s study of housing alternatives and costs, and is part of Helsinki
City’s Research Programme for the years 2004-2006.Some interesting findings : "A crucial finding is that it is cheaper (per square metre) to buy a home in the cheapest neighbourhoods in Helsinki than to be a tenant in an average city-owned rented flat. This finding is explained by two factors: the low level of interests in the euro area the right to deduce housing mortgage interests from your taxable income."Back in beginning of 2006 interest rate were low, artificially low, decades low... But there are not today and won't be in the future. Now the question is that wo Read more:Housing
ETLA - The Research Institute of the Finnish Economy 2007-10-18 00:55:47 ETLA - The ResearchInstitute
of the Finnish
EconomyHouseholds’ increasing indebtedness and higher interest rates begin to slow down private consumption growth in Finland Residential investment is expected to decline slightly Dampening domestic demand and structural problems on the labor market are expected to slow down employment growth Consumer price inflation is expected to accelerate next year to approach 3 per cent Before too long households’ increasing indebtedness is likely to start curbing growth potential of both consumption and residential investment. On average, households’ debt equals their annual disposable income. Households have increased their loan burden mainly to finance building of new houses and purchases of larger homes on the residential market. Also consumption on credit seems to have increased. According to last year’s national accounts households consumed more than they earned. Based on available information on households’ i
Kesko Oyj Market Review 2007-10-18 00:51:35 According to the preliminary data of Statistics Finland, in January-August 2007, the volume of Finnish retail trade increased by 7.8% compared with the corresponding period of the previous year. The increase in the wholesale trade volume was 7.3% in the same period. The volumes of Finnish retail and wholesale trade are expected to continue to grow also during the rest of the year. The growth is expected to decelerate slightly as a result of household indebtedness and the increase in interest rates.Market
s in the Baltic countries and in Russia are expected to continue to grow more rapidly than markets in the Nordic countries. The Finnish market is expected to maintain a good growth rate, although there are clear signs of a slowdown in construction
Nordea CDO, Risk free or IS IT? 2007-10-16 23:26:07 So the Nordea
CDO fund, which is a fixed income fund is shown to the public (still!) as a safe investiment, "a very low risk", it's just o.u.t.r.a.g.e.a.o.u.s! Some people have lost about 6% from the beginning of this year, for some investment vehicule that was guaranted by Nordea as being very safe and are for those who do not want to invest their retirement money or lifetime investment in Stock oriented fund or risky one. But what are CDO and its relation with the housing market? Collateralized Debt Obligation - CDO : An investment-grade security backed by a pool of bonds, loans, and other assets.The problem is with this pool of loans is that they were higly rated by rating agencies (Moody's etc..) as being of a good quality, low risk and hi
Variable rate mortgages and abolition of the rent control 2007-10-16 22:24:41 Variable
rate mortgages longterm financing is available to Finns, their natural propensity is to opt for short-termmortgages. In fact, 92% of mortgages initiated in 2001 by Finns were variable-rate mortgages tied to a market indicator (like Euribor). This propensity, reportedly based on consumer perception that financing with a short-term mortgage is a cheaper strategy, left a large number of highly leveraged mortgage borrowers facing large mortgage payment increases in the early nineties, at a time when many were also losing their job.This contributed to the downturn of house prices in the early 90's.For borrowers who might be taking on mortgage payments near the limit of their capacity to pay, exposure to interest increases may lead to serious affordability problems. State
YLE on Finnish housing slowdown 2007-10-24 14:37:15 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.
Fast Credit Problems Under Investigation 2007-10-23 13:23:21 ... 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.The working party will also consider whether the granting of express loans should be forbidden late in the evening and
Politicians start to get worried, or are they? 2007-10-22 12:38:41 City Board member Kauko Koskinen (Nat. Coalition Party), who serves as chairman of the Helsinki's Public Works Committee.The sharp rise in prices could reduce demand. When demand is weak, there is the danger that the construction of new residential areas will be implemented slowly. Construction companies are currently putting the breaks on production. Koskinen is calling for new concrete measures to boost the production of housing. "We have to find new medicines for getting affordable housing. There is not an endless supply of buyers for expensive homes financed on the free market", he observes. One way to push down the price of housing could be for the city to sell off its old rental apartments. The matter was discussed in the Public Works Committ
Europe Feels Pinch As Housing Boom Slows 2007-10-22 06:05:22 Home prices in some of Europe
's hottest markets are falling after a decade of double-digit-percentage increases. The reasons resemble those across the Atlantic: higher interest rates, faltering confidence and tighter lending standards.The housing boom was a global phenomenon, affecting virtually every developed country outside of Japan during the past 10 to 15 years. Former Federal Reserve Chairman Alan Greenspan is among those who argue that a period of sustained low interest rates and quiescent inflation world-wide after the Soviet Union's collapse encouraged a rush into housing.Last year, Spanish families on average paid six times their annual salary to buy a home, compared with 3½ times salary in the late 1990s, according to the Bank of Spain, the central bank. Immigration and an influx of wealthy tourists scooping up coastal property fueled skyrocketing prices.Tomas Gonzalez, a 33- Read more:Feels
, Housing
, Slows
Bank of Finland predicted Financial unstability in 2005 2007-10-19 08:48:29 Financial
unstability highlighted By The Bank of Finland
in 2005 "The rate of growth in lending has for a number of years already been clearly faster than the growth in deposits, leading banks to increasingly resort to market-based funding. Although well-integrated money and capital markets are capable of offering banks a functioning source of financing, changes in the funding structure set ever greater challenges to banks’ liquidity management."Good job from the Bank of Finland. They clearly outlined the scenario that was set to happen few years after in August 2007. That reminds me of Nothern Rock issues... Not relying to fund their loan on the customer deposit but instead on integrated market. The August crisis in the Sub prime in the US led to a worl wide tightening of credit, the market-based funding went to a complete freeze for smaller bank
Inflation, Inflation, where is the ECB? 2007-10-29 13:57:21 "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.""Construction confidence stayed fairly stable in October."If there is one sector where confidence should falter, it's surely the construction sector. Well it's a lagging indicator, most probably with a lag from 6 to 12 month. As in the United States in June 2005, the market expectation for housing price increase was very high, then prices stabilised for 6 mon Read more:Inflation
Statistic of Finland: Not a favourable time to raise a loan 2007-10-29 01:37:06 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.In October, 40 per cent of consumers thought the time was favourable for buying durable goods. Twelve months earlier, the respective proportion was 44 per cent. Many households intended to spend money on, for instance, home furnishings or travel during the next six months. Intentions to purchase entertainment electronics had decreased slightly, but in October, 25 per cent of households considered purchasing a digital set-top box. Even major purchases were attractive, for 19 per cent of households were fairly or very certain to buy a car and 10 per cent a dwelling in the next Read more:Statistic
Ordinary wage-earners can no longer afford to live in the Helsinki region 2007-10-25 23:18:29 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 Helsinkiregion
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 Hels
Recommend Site To A Friend
