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tirsdag 26. november 2013

Bemoaning low house prices? Eikas cheif economist in lala land


Roughly translated; house prices in Oslo are too low and on a national basis it is not economic with any new building.

Ja vel, as they say here . He is gryning really about the biggest correction to the markets for consumer finance and mortgages in the north western hemisphere since who knows when...it almost has no comparison as a half decade of insiduous decline to what i mean is infact a greater reality now ahead of us:; rather several major changes:

1) we are facing a shift of wealth creation, distribution and retention away from the western middle class engine to asia and to the super rich.
2) we in the west are going to have to get used to paying a much higher proportion of income on food and energy
3) we are in a new epoch where  nervousness is a powerful brake on the previous lunacy of loose flowing credit- uncertainty in the finance system based around intervention regulation versus abject failure if the mistakes were repeated and a western world liquidity crisis rose again.

Although maybe not inevitable, it is a forseeable scenario that house prices to income ratios outside the major western metropolises will continue to be a gearing with a declining profile towards three times average household income per average city or regional house price.

Norway is not exempt from the demands on banks to have higher equity to debt ratios. This has had the immediate effect at the highest percieved risk end where now first time buyers have no access to one hundred percent mortgages. They are faced with 5 - 10 years of saving for the minimum deposit; that may even need to rise if house prices show stagnation or a falling trend for the flats they would be buying.

This is the base of the whole pyramid of consumer property, but it is in fact just a drip of petrol which used to get the nitrous effect when boy meets girl, and two starter flats are sold at a major joint capital gain. That is what had been stoking the fires of the Norwegian house market prices, and many regional markets.

With the 1970 and 80s babies themselves dragging their feet terribly in starting families, this meant that the single white female had made a very tidy profit on her appartment because she had been in that rabbit hutch for 5 to 10 years. She and himbo had probably not paid a bean in capital repayments either but came out with maybe a million krone as the downpayment on their big step up the ladder.

Now they cant sell or make less or find they are even in negative equity and losses on selling costs. So the bottom rung on the ladder has actually affected profoundly the town house appartment, semi in the commuter belt or out of town villa two steps up the ladder or more.

Eventually you reach a level where ordinary employees are not the fuel in the market. Here the rich in Norway have been really stung due to a hang over of super high glamerous prices which the glitteratii thought nothing of paying to secure a bit of coastal paradise or luxurious cabin at altitude.

Lower down from the impulse purchases of the well heeled, capital investing in property means getting ROI,  in turn that necessitates selling at some point. That also relates to green field and brown field redevelopment plots.

It is therefore pretty obvious that two main scenarios pan out: house prices fall,  land prices follow , developers and builders decide to get a little less rich or lower margin operators come into the market. The next scenario is that a bubble is suddenly created with masses of first time buyers getting access suddenly to the market: this would happen because the blue-blue government get their puppet strings pulled and create a system for 100% mortgages or subsidise first time buyers, , , which was called sub prime in the USA and was probably the the grain of sand in the evil oyster which precipitated the whole crisis......

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