Mish's: Housing Bubble And Currency Controls In Poland

[Peter Hun]

In Poland, there has been a property bubble since 2006-7 that never really popped. Prices in central Warsaw are comparable to prices in Berlin and Vienna, and of course incomes are way lower. Prices have fallen 10-15% from the peak, but our currency has strengthened, so the net effect is zero. Prices has been fueled, as is typical for the whole region of central/eastern Europe, by cheap capital denominated in Swiss Francs and Euros, coordinated mainly by Austrian and Italian banks and originating in Switzerland. 62% of mortgages are taken out in foreign currency. Almost all mortgages are variable-rate. However, the Polish regulators have recently begun cracking down on all of this.

http://polandeconomy.blogspot.com/2010/07/polands-deficit-issues.html

(I can never post in the news articles, my comments just disappear)

[Peter Hun]

I have become very suspect of Mish since he posted about Iceland s banking problems being caused by international bankers. In fact, Iceland's problems were entirely home grown. This is more evidence that he simply cannot to do a bit of research

Edward Hugh take on it -

Poland was basically able to endure without too much bloodletting for three principal reasons.

In the first place the level of household indebtedness is still not excessively high. In the second place Poland had maintained a floating exchange rate which meant that it could let the zloty rise during the heady days of 2008, and then allow the currency to devalue when the crisis hit. An thirdly, the level of Forex lending never rose as high in Poland as it did in some of its East European neighbours, which meant that when the time came to devalue there was not such a threat of increasing the Non Performing Loan rate. As can be seen in the chart, it was starting to take off when the credit crunch came along and (fortuitously) stopped it dead in its tracks.

http://polandeconomy.blogspot.com/2010/07/polands-deficit-issues.html

Forex lending has gone down since this chart finished, banks in Poalnd have always been tight fisted with lending in comparison to other countries. Its difficult to get credit. Maybe there was 62% forex lending at one point, but that is NOT the same as 62% of mortgages are in a Forex. As the letter points out, the total is below 50% and will stay that way.

Mish's comment:

Thanks Robert! I always appreciate emails like yours so readers in the US can find out what is really happening in Europe.

Mortgages denominated in foreign currencies are a disaster waiting to happen, not only for the debtors but to the banks that made the loans.

First, Poland is join the Euro so its not exactly a foreign currency (although whether that will or should happen is another thing). Second, the Zloty is the most undervalued currency in the world, Polands central bank has a constant fight to keep down, so its a pretty sure thing that it will appreciate due the lousy average earnings in Poland (about £7K).

I stopped reading Mish's blog becuase he is full of crap when it comes to anything outside the US and therefore suspect on anything he says about the US (with his political taint on things). He has a habit of making sweeping statements without putting any thought into it.

[Injin]

I have become very suspect of Mish since he posted about Iceland s banking problems being caused by international bankers. In fact, Iceland's problems were entirely home grown. This is more evidence that he simply cannot to do a bit of research

[LittleSteroid]

yes, prices went up nearly 50% in some areas since 2005, new developments are litteratelly everywhere, flats being sold before they even dig the first hole! Funny though, if look closely at night, only phew lights are on. So who is buying all these flats?

Edited November 9, 2010 by LittleSteroid

[Executive Sadman]

yes, prices went up nearly 50% in some areas since 2005, new developments are litteratelly everywhere, flats being sold before they even dig the first hole! Funny though, if look closely at night, only phew lights are on. So who is buying all these flats?

The wilsons?

[Toto deVeer]

yes, prices went up nearly 50% in some areas since 2005, new developments are litteratelly everywhere, flats being sold before they even dig the first hole! Funny though, if look closely at night, only phew lights are on. So who is buying all these flats?

Oh Oh, me first!

British emmigrants?

[Peter Hun]

Oh Oh, me first!

British emmigrants?

Well actually to an extent, yes. Many Poles working elsewhere in the EU are saving to buy property in their homeland.

There is also 10million plus ex pat American Poles who buy in Poland and which distorts the market. The price of property is some areas is ridiculous compared to wages here.