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Danske Bank Chief Analyst Minna Kuusisto It is believed that the sharp drop in the 12-month Euro Interbank Offered Rate (Euribor) at the beginning of the week will still maintain a temporary bottom level.
“This has a positive impact first on those who are lucky and happen to have a rate review day,” Kuusisto said.
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The 12-month Euribor, the most typical mortgage reference rate, fell by nearly 0.2 percentage points on Monday and Tuesday, from 3.320% to 3.138%. The rate has fallen for nine consecutive days. Tuesday’s drop was the biggest so far this year.
Kuusisto believes that the slowly falling Euribor is a good thing for the housing market. He said that mortgage borrowers’ reference rates will now be updated to the lower level, regardless of which Euribor their loans are pegged to.
“It can also have a positive psychological effect. We dare to make bigger purchases. In the past, when there was uncertainty about how interest rates would develop, we didn’t dare to do that. High inflation is also a concern.”
“Lower interest rates are gradually affecting the housing market. However, this is not a sudden relief,” Kuusisto continued.
“Too much calculation”
Kuusisto said the decline was due to a U.S. labor market report that clearly disappointed the market, fueling concerns about the U.S. economy and expectations of a rate cut by the central bank.
“It’s good to understand that interest rates are affected by expectations about the future. Then when there is a situation where expectations change significantly, as happened yesterday (Monday), it will also be reflected in Euribor.”
Nordic Chief Economist Jan von Gerich Leave a comment on Tuesday Messaging services in XCompared with its own expectations, Euribor has fallen too much and the future direction will slow down significantly.
Kuusisto said market pricing was so intense on Monday that some were speculating the Fed would make an emergency rate cut before its next meeting.
“If expectations fade, the decline in Euribor rates may not be as rapid. Then you can pull back the back pack a little bit. Of course, in the big picture, rates will fall next year.”
The real estate market picked up in July.
A fall in Euribor can have a positive psychological impact on the market.
Photo: Oti Jävinen
Economic data is bleak
Kuusisto said a similar decline could occur if new pessimistic economic data emerges. However, as far as financial publications are concerned, things will remain quiet in the coming weeks.
“If new data like this were received about the economy that would be disappointing and heighten concerns about growth, then rates would probably fall more quickly.”
The big change in expectations is reflected less strongly in the short-term Euribor rate, which is why the long-term (i.e. 12-month) Euribor has fallen faster than the other Euribors.
“The change is quite remarkable because until early summer the market was speculating that the Fed simply could not cut rates and some were speculating whether it should still raise rates. Now we are at the point on Monday where the market is pricing in five rate cuts by the Fed before the end of the year,” Kuusisto said.
Alacroist.
The Swedish Real Estate Agents Association previously said that the number of apartment transactions was at a historical low at the beginning of the year.
Photos: Most photos
Euribor rises to just over 2%
At Danske Bank, we believe that rate cuts will be more modest as there is no more reason to do so. The bank believes that inflationary pressures remain and economic growth does not look as weak as individual reports on the US labor market suggest.
“For the ECB, we expect one rate cut in December.”
Some central banks have already started cutting rates. The European Central Bank did so in June. The Bank of England also cut rates last week.
Nordea and OP’s chief economists believeTwo cuts of 0.25 percentage points are expected in the key rate, in September and December. Finland’s largest bank estimates that the 12-month Euro Interbank Offered Rate (Euribor) will remain around 3% by the end of July.
Kuusisto believes that in the long run, the euro interbank offered rate will stabilize above 2%.
“The speed at which we get back to that level depends on how the economy and inflation develop. That determines how quickly interest rates can come down.”
This story was originally published in Iltalehti.
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