Mika Koskinen
Inflation in Finland has been below the ECB’s target for a long time, writes Iltalehten’s Mika Koskinen.
ECB President Christine Lagarde at the ECB press conference on April 11, 2024. Angela Morant/ECB
The Finnish housing market reacts strongly to the exceptionally fast rise in interest rates that started in the spring of 2022. In February, the prices of old shared apartments were on average 11.5 percent lower than at the peak in June 2022. Regional differences and differences within regions are also large. In Helsinki, for example, prices fell by about 9 percent on average
The number of apartment deals has also dropped clearly. Last year, approximately 55,500 sales of old shared apartments were made in Finland. It is about 21% less than in 2022. In 2021, the number was almost 83,000 trades.
When you add to this the housing construction recession, it can be concluded that the Finnish housing market has experienced an exceptional period in recent years.
Statistics Finland reported the latest data on housing price developments on Friday. According to preliminary data, the prices of old share housing fell in March across the country by 4.0% from the previous year, but rose by 1.7% from the previous month. If the information does not change with the additional data, then it is the second month in a row where prices increase compared to the previous month.
Trade volumes were also increasing in March. The gain was 6 percent.
So some see signs of a turnaround in the housing market. Chief Economist of Suomen Yrittäjai Juhana Brotherus according to the improving purchasing power, falling interest rates and pent-up housing needs can be seen in the background of the development.
Chief Economist of Danske Bank Pasi Kuoppamäki was more careful in his interpretations. He does not believe that the pent-up demand will start to break out quickly. Interest rates on mortgages have fallen from peak readings, but he pointed out that the rate of decline has been quite moderate.
The housing market recession may well continue if interest rates remain high longer than expected and the recession of the Finnish economy deepens.
You should be prepared for the fact that interest rates may not fall, at least not as quickly and as much as many people thinking about buying apartments have hoped.
Economic data from the United States and the Eurozone have renewed the favorable interest rate outlook at the end of last year many times during the current year. The reason is simple: inflation has not slowed down as quickly as previously predicted.
It puts central banks in a difficult position. The European Central Bank (ECB) has been expected to start the first interest rate cuts of the current interest cycle in June, but the reduction in key interest rates has by no means been announced. If it happens that the ECB does not lower its benchmark interest rates in June, market interest rates will probably turn upwards again, as the interest rate cut in June has largely already been priced into Euribor rates.
The uncertainty related to interest rates leaves mortgage debtors and first-time home buyers alike. The situation is unfortunate, but it is good to remember that the current interest rate is quite close to long-term averages.
The saddest part of the matter is that inflation in Finland has already fallen well below the ECB’s 2 percent target some time ago. To put it in Finnish, we are now suffering from the euro area’s common monetary policy. It is poison for the housing market, but above all it is poison for the entire Finnish economy, which will probably shrink again this year like last year.
#monetary #policy #poison #Finland
