The Finnish real estate market – a summary of things happening here

First of all, a quote from a post by Wolf Richter which just came online:

Since early 2012, Wall Street players, armed to the teeth with the nearly free and limitless money that the Fed in its infinite wisdom has made available specifically for these purposes, piled into the market, buying up hundreds of thousands of homes helter-skelter and turning them into rental properties. It switched these homes from for-sale lists to for-rent lists, where many languished unperturbed, and it drove up prices in record time. Current homeowners welcome that.

But first time buyers, the natural force in the housing market, were effectively pushed aside and are now priced out of the market. Even many current homeowners who want to sell are locked into their homes as they cannot afford the next home, given higher mortgage rates and sky-high prices. At these prices, even investors can’t buy these homes and rent them out at a profit. In many areas of the country, that business model is kaput. So they pulled back too. This is how the Fed fixed the housing market.

The only thing lacking in this “fixed” housing markets are willing and able buyers. So inventories are piling up, and someday sellers will “read the memo.” Then prices will be whittled down to where they make economic sense in this economy. We’ve been through this before. Only this time, it’s different: the Fed, which so eagerly took credit for having “fixed” the housing market, is going to be hard-pressed to cut interest rates further, or do anything else it isn’t already doing.

I think this is on a smaller scale what is happening in Finland. In Finnish I have some posts on the issue (here, here, here and here). The core message is: there are a few areas where prices are still rising, but at the moment real estate prices in Finland are declining. Also it is expected that there will be a relatively small “trapezium” in Finland where real estate will retain its value, in particular detached houses. One source says that there will be some 1,1 million detached houses which will dramatically lose value with ongoing processes of urbanization and concentration of jobs in urbanized areas. Recent statistics say that certain types of appartments are in high demand but this is not enough to explain all cases of (recent) price increases, e.g. in the Eastern Finnish city of Joensuu.

In this context, I found the news by Statistics Finland on recent rent increases revealing – rent increases sharply diverged from inflation developments from 2012 onwards:

Rent development in the capital region (yellow) and rest of Finland (blue) in comparison with inflation (green)

Rent development in the capital region (yellow) and rest of Finland (blue) in comparison with inflation (green)

 

 

 

 

 

 

 

 

 

It is quite possible, that this divergence relates to the moment that the Euribor-rate started to approach zero, which happend during 2012 (link). For normal consumers/buyers this perhaps has not been a very dramatic event but for investors hungry for yield this has been very attractive, especially with all kinds of liquity “sloshing around in the financial system.” and since low interest rates make for lousy yield it can be compensated with rent increases (as WR writes on the US situation: ‘At these prices, even investors can’t buy these homes and rent them out at a profit.’) It is difficult to find very hard evidence on these kinds of developments, especially since there are so many different statistics out there. But also this news (in Finnish) mentions that there are big difference in yield between investment apartments in Oulu or Helsinki. I think this table of the Bank of Finland holds the clue to the question of credit flows to Finland, but probably from this it still can’t be seen where this credit goes.

All in all my analysis stands, that there have been local housing bubbles in Finland, but with the continuing downturn of the Finnish economy these bubbles are mostly bursting and investors may be going from buying-and-selling to buying-and-renting (in the context of difficulties of selling and the low interest rates), especially in the capital region, around Tampere and Turku and some other larger cities/growth centers. It would be nice if someone could poke around in financial and housing statistics to get confirmation for this analysis (or show it to be wrong!)

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