Finland, like other Nordic countries, has so far shown itself to be particularly resilient to the current financial shocks, but the clouds are gathering over the “Land of the Midnight Sun”. After five consecutive quarters of growth, buoyed by robust domestic demand, activity is expected to slow significantly in the second half of 2022 due to the persistent geopolitical tensions, tightening of financial conditions and price rises that are impacting on corporate margins and on the purchasing power of households. In an increasingly less favourable economic environment Finland can, nonetheless, be pleased with its structural efforts and in particular with the success of its housing policy
In many developed countries, housing prices have risen very sharply since the Covid-19 crisis. In the United States they jumped 37% between the 4th quarter of 2019 and the 2nd quarter of 2022. In Germany and the United Kingdom, the increases have also been significant and were 23.8% and 18.6% respectively over the same period. The increases in Italy (+7.4%) and Spain (+10.8%) were more restrained, while France (+14.1%) and Japan (+15%) were somewhere in between. Can such price increases be justified in terms of fundamentals or are they more indicative of a real estate bubble? In order to quantify this, the Dallas Fed publishes a housing prices exuberance index each quarter
The Spanish housing market is building momentum again after its deep correction between 2008 and 2013, which erased part of the excesses created over the early 2000s. In 2021, transaction volumes hit their highest level for twelve years. House prices have been growing at an average of 5% per year over the past six years. Housing activity is now benefiting from multiple sources of support: the post-Covid economic recovery, higher levels of household savings, growth in employment, low borrowing rates. Rising housing prices are driven by limits on housing supply, which are likely to persist, given rising construction costs as a result of higher materials expenses
In Spain, the change in house prices and the transaction volume are highly correlated. In an upswing, the latter will be supported by attractive borrowing conditions and confidence in the economic outlook, thereby causing a rise in house prices, which in turn can fuel expectations of further increases and hence raise the transaction volume. Real estate activity in Spain rebounded sharply in 2021 following a drop in 2020 due to the health crisis. The number of housing transactions exceeded 674,000 last year, the highest level since 2007. Even so, this was nearly 30% below the 2006 peak. Demand is still buoyed by historically low borrowing costs and a rising number of Spanish households. As a result, house prices rose significantly in 2021 (at annual rate of 3
Our monthly Pulse highlights the cyclical deterioration of the Chinese economy in August-October 2021 compared to the previous 3-month period. While the situation in the industrial sector improved in October after a sharp slowdown in September, the correction in the real estate sector has continued. Industrial production growth picked up slightly in October (+3.5% y/y in real terms, compared to 3.1% in September and 5.3% in August). In fact, the measures introduced by the authorities rapidly eased energy constraints last month.
Our home affordability index measures the ratio of the borrowing capacity of households (based on average household income, average fixed mortgage rates and average mortgage duration1) to the average existing home price per square meter (m2). Over the past ten years2, home affordability has increased by 30.4% in the provinces, but declined by 12.2% in Paris. Changes in average credit conditions (the average duration was extended to 18.8 years from 17.8 years, and mortgage rates declined to 1.30% from 4.30%) and disposable household income (+7.1%, notwithstanding differences in level) were relatively homogeneous at the national level, which means the differential can be attributed almost exclusively to the spread in existing home prices changes since 2009: home prices have increased by 64
The share of residential loans to individuals whose value at the origination represents more than 90% of the value of the property acquired continued to grow in the first quarter of 2019. This credit category then represented 4.5% of outstanding home loans compared with 4.4% in the previous quarter and 3.3% a year earlier. The increase in their weight in the first quarter of 2019 prolongs the trend observed since the low point reached at the end of 2009. It also goes hand in hand with the increase in the proportion of real estate loans whose value represents between 75% and 90% of the value of housing. The growing financial constraint of households is otherwise illustrated by the increase in the proportion of loans with a high loan to income ratio
In 2019, French households are expected to benefit from major purchasing power gains, which we forecast at roughly 2.5%, the biggest increase since 2007. Several factors will contribute to this big gain. Tax cuts will be the most visible source, but measures to support earned income and social benefits will also play a key role. Milder expected inflation will also help, but this factor could be reversed, especially if the current upturn in oil prices continues.