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Another characteristic feature of the advancement of the housing market at the second stage became the price dynamic relative to two basic periods (Decem ber 2001 and December 2004). As for the dynamic relative to December 4, it can be found in Table 20, while Table 27 below highlights the dynamics relative to De cember 2001.

Table Price Dynamics for Housing in Russian Cities in 2001 December December December December December 2001 2002 2003 2004 As % to As % to As % to City (region) As % to USD./ USD./ USD./ Decem USD./ Decem USD./ Decem Decem Sq.m. Sq.m. Sq.m. ber Sq.m. ber Sq.m. ber ber 2001. 2001. Moscow 940 1096 116.6 1610 171.3 1953 207.8 4828 513.St. Petersburg 469 588 125.4 841 179.3 1083 230.9 2593 552.Moscow oblast 471 559 118.7 748 158.8 908 192.8 2522 535.Ekaterinburg 484 519 107.2 570 117.8 882 182.2 2415 499.Novosibirsk 451 434 96.2 524 116.2 748 165.9 1658 367.N.Novgorod 301 380 126.2 458 152.2 579 192.4 1650 548.Rostov on Don 346 413 119.4 494 142.8 656 189.6 1550 448.Perm 409 394 96.3 410 100.2 680 166.3 1430 349.Tver 268 313 116.8 360 134.3 542 202.2 1370 511.Ulyanovsk 216 260 120.4 300 138.9 405 187.5 859 397.Providing the December 2001 prices form a starting point, during five years prices grew 3.5 4 fold in Perm, Novosibirsk, Ulyanovsk; 4.5 4.8 times in Rostov Section Institutional Problems on Don and Ekaterinburg, 5.1 5.5 times in Tver, Moscow, Moscow oblast, N.

Novgorod, and St. Petersburg.

Thus, these data prove the aforementioned regularity of the second stage of development of the Russian market for housing, that is, the non stop (since 2000) price rise, without any drastic ups and downs. It is equally possible to expose yet another substantial regularity of the long term development of the price situation on the regional markets, which became a consequence of the noted absence of synchronism in their advancement. In a nutshell, at the beginning of every stage of growth, there arises a fibration of price trends, while at the end of the phase, in the course of transition to stabilization, there occurred their consolidation. The trend of the first type was noted in 1990 1995, 1998 1999 (under the price downfall), be tween summer and autumn 2003 and autumn 2005; while the trend of the second type arose in 1996 1997, between late 2000 and early 2001, and in early 2005 and late 2006. This is another proof of an overall beginning of stabilization of housing prices in Russian cities.

5.5.5. Forecasts of development of the housing market Since 1995 the annual forecasting of trends of price dynamics on the housing market of Moscow and other Russian cities rested upon economico statistical models145. Until 2001 (including the post crisis recovery stage) the models ensured a great accuracy of forecasting. But the models have failed to foretell a constant price rise at the second stage of development of the national housing market, and the 2003 and 2005 booms in particular. Effects of the stages were viewed as pre requisites for the growth and explosion of the bubble on the Moscow city housing market by analogy with suchlike scenarios that battered housing markets in the US, UK, USA, Canada, Australia, and some other countries, which local analysts used to regard as the most likely ones.

In conjunction with the above, there arise questions as to what this new, sec ond, stage of the market development is, how the existing trends correlate with the cyclic phenomena characteristic of a market economy, and how probable the pos sibility for a new downfall in prices for Moscow housing is.

Given the persistence of the current state of affairs in the world markets for energy sources, which form major Russian exports, a continuous solidification of the national financial system, whose safety is warranted by the Stabilization Fund, a gradual diversification of the national economy, completion of formation of political mechanisms that ensure succession of the current socio economic course, un foreseen circumstances (such as a world financial crisis, a war between the civiliza tions, a political crisis in the country, etc.) cannot be excluded, albeit their probabil ity seems minimum.

Whereas the behavior of the real estate market is to a significant extent driven by external factors, that is, general economic conditions, it can be asserted that its main regularity and basic trend will be a sustained price rise for housing. One of the Sternik G. Statistichesky podkhod k progonozirovaniyu tsen na zhilye. Zhurnal RAN Ekonomika i matematicheskoye metody, tom 34, vyp.1, 1998, p. 85 RUSSIAN ECONOMY IN trends and outlooks most investment attractive sectors of the economy, the housing market should continue to grow along with the economy, with price rise rates for housing in Mos cow advancing the general pace of the nations economic growth.

Typically, there are several counter arguments against the possibility for a manifold price rise for housing in Moscow.

The first argument is that, according to the basic postulates of the market theory, without any emergency circumstances, prices on the market cannot grow faster than at 20% annually (as they follow mostly the dynamic of the populations real incomes, or even once in two three years), as rising prices fuel growth in offer, after which the prices discontinue to rise. But the real estate market is to a greater extent exposed to inertia effects, and it takes a few years to increase the offer. This is the phenomenon noted over the past 1.5 years in the course of implementation of the national project on affordable housing, when the state has been trying by all means to encourage growth in effective demand (a general growth in the popula tions incomes, mortgage, a direct support to individual social groups), but invest ments in stimulation of volumes of construction and offer can ensure effects only in three or four years later, which is why the project so far has skidded, while the housing prices have been on the rise.

The second argument rests upon recognition of the fact that the housing prices have their natural ceiling dictated by the populations income level and ef fective demand. Once the population fails to catch up with such a price rise, the demand goes down, which exercises a certain pressure on sellers, compelling them if not to lower, but, at least, not to increase their prices. From theoretical per spective, the probability of such a scenario is, indeed, great, however, like other regularities, this one is effective only within certain limits, beyond which there arise exceptions from the general rule. One of such exceptions undoubtedly is housing market in the capital city. Moscow isa gravity center to all residents of other Rus sian regions and Near Abroad countries, and they arrive with new sources of in vestment in the local housing. The effective demand on housing in Moscow is loosely dependent on price levels. It just takes short (between 6 and 12 months) breaks, when the price rise for housing discontinues, and this lasts until next surge.

Plus, in all the developed economies the costs of housing in capital cities are far greater than in other cities.

Potentially, a release of pressure of effective demand on the capital market for housing may become possible only in the long term, should there emerge other economic and cultural centers capable to ensure a certain quality of lifecomparable, at least, to those presently in existence in Moscow. In the condi tions of the market model emerged in the post Soviet zone this appears highly unlikely, as the model in question is characterized by social and cross regional differentiation by main indicators, concentration of business activity in the capital, Quality of life is a complex concept, which includes not only living standards that are determined by the current monetary incomes and accumulated property, but the level of development of various kinds of infrastructure, availability of qualitative educational and health care services, environmental and criminogenic situation, etc.

Section Institutional Problems where the plexus of power and business under the transitional economy provided ample opportunities for huge incomes, particularly by means of rent seeking be havior. One cannot reject, of course, a possibility for the towns that are satellites to Moscow (Khimki, Krasnogorsk, Dolgoprudny, Mytischi, Balashikha, Reutov) to gradually catch up with Moscow in terms of their attractiveness as microcenters for investment in real estate, thus forming a huge agglomeration. However, even in that case Moscow stays in the lead, while Moscow oblast (mostly the satellite towns) is retaining its flown position. It is worthwhile noting that all that would be in no way related to the possibility of a rise in Russia of centers comparable with Moscow.

The third argument, which rejects the possibility for a manifold price rise for real estate in Moscow in the long run, rests upon a thesis that prices for real estate cannot rise indefinitely and, as elsewhere in the world, they should stop and then go down. The record of developed nations witnesses quite the opposite, thus prov ing the logic of the price rise on the capital market. Thus, while real estate prices in Moscow grew 6 fold over the 6 years of steady growth, in California they grew fold over 10 years, and in London, Paris, Berlin and Melbourne 8 to 10 fold over 10 12 years.

In anticipation of the start of bursting of the bubbles and the price downfalls by analogy with the stock market, the world actually witnessed just a sole example of this kind. That occurred in Japan: dragged into the orbit of the Asian crisis 98, the country faced a relatively long standing economic stagnation and saw some downfall in prices for real estate.

Back to the price dynamics on the capital citys real estate market over the past 6 years, it has to be noted that the trends therein caused the illusion of the ab sence of cycles on the market. That is why the common method of examination of dynamic price series limits our understanding of the market tendencies. Because of this, one suggests a new method of studying the market dynamics, aka the non harmonic decomposition of price trends 147.

The method per se is a transition from the studying of the dynamic of the stud ied value (prices) to the examination of the first derivative (which is increments, or the rate of growth), then the second one (growth rate of the increments, or accel eration of price rise rates), etc. dynamic series of growth rates of increments of values against an approximated function of the previous level.

Thus, one can speak of interaction between cycles of fluctuations of different lengths. A long cycle of fluctuations is determined by a complex of macroeco nomic performance indicators of a country and city (region). To these basic trends one applies faster fluctuations that are determined by the construction and invest ment cycle, advancement of the infrastructure of the market for house building, citizens consumer behavior, etc. These medium, faster, cycles realize them selves not in price fluctuations, but in those of the first derivative, namely, growth rates in price increments. Short cycles in turn reflect fluctuations of the second de Sternik G., Krasnopolskaya A. Metod negarmonicheskogo razlozheniya tsenovogo trenda.

www,realtymarket.org, July RUSSIAN ECONOMY IN trends and outlooks rivative (pace of acceleration of the price rise) relative to the trend displayed by medium cycles. The short cycles can be determined by different factors, for in stance, seasonal and calendar fluctuations, price fluctuations for energy sources, a drastic change in the balance of private capital outflow, among others148.

The forecast comprised three levels:

- short term forecast deceleration of price rise rates and transition towards stabilization until late - medium term forecast (until late 2007) price stagnation with a possible downward adjustment (at 3 5%);

- long term forecast (10 20 years ahead) sustained growth with the average an nual rate of 20 25% (with prices quoted in the nominal USD) and fluctuations of monthly growth rates within the range between zero and 80 100%.

The actual price dynamics in the short run mostly proved the forecast.

USD/ sq.m.

Moscow, retrospective Forecasted Actual Moscow oblast, restrospective Forecasted Actual Figure 20. Forecast of Average Prices for Housing in the City of Moscow, Moscow Oblast and St. Petersburg In five months after the forecast for Moscow and Moscow oblast had been calculated it is possible to note that the actual prices proved to be slightly greater than the forecasted ones, albeit their growth rates decelerated: in Moscow from 8% in May to 6.8% 1.5% between June and October and zero in December; in Moscow oblast from 14% in May to 5.8% in October and zero in December; in St.

Petersburg from 11% in October to 0.7% in December.

Sternik G.M. Tekhnologiya analiza rynka nedvizhimosti. M., AKSVELL, 2005, 203 p.

Jul Jul Jul Jul Jul Jul Jul Jul Jan Jan Jan Jun Jun Jun Jun Section Institutional Problems The results of forecasting the price dynamics in Moscow through late showed that one can expect stagnation on the market analogous to that noted be tween late 2004 and early 2005. It should last at least until autumn 2007 and com prise a 5% price adjustment (relative to June 2006), the peak of which should fall on spring 2007 (by analogue with the spring 2005 adjustment in St. Petersburg).

Overall, the year of 2007 will see stability of prices with probable minor fluctuations and transition towards a new cycle of price rise since spring summer 2008. By late 2007 the price increment rate in Moscow should be close to zero and 65 70% by late 2008.

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