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Bubble, or no bubble? Economists differ on Finland's property market

Aug 13, 2010 | 0 Comment(s)

Finland's Finance Undersecretary Martti Hetemäki has warned that a property bubble is imminent -- and the collapse of the market as house prices continue to climb.

But Martti Nyberg, head economist of Nordea Bank, disagrees that there is a housing bubble. He says that there are good reasons for the rise in prices. For one, they had declined during the recession and are now coming back. People are also buying now because interest rates are low and they prefer to own rather than rent. The cost of borrowing is also smaller now for families -- only 8% of a family's income goes to loan servicing now compared to about 25% in the 1980s and 1990s.

Antti Suvanto of the Bank of Finland also does not believe that there is a housing bubble, though he thinks that the property market is becoming a little overheated, primarily because of the low interest rate and the lower servicing costs of debts. But he emphasizes that people should exercise caution about borrowing. “The pace of rising prices and the willingness to borrow money are not a good combination with the prospects for the economy,” he says. “No boom years are on the horizon, so there is also a risk of incurring too much debt.”



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