All agree that prices will continue falling, the question is how much, and can the data be trusted?
Spanish house prices have fallen 18pc from the peak, according to the Government’s House Price Index. Is that enough? Not according to Isidre Fainé (pictured above), head of La Caixa, Spain’s biggest savings bank, who says house prices could fall 50 to 60pc peak-to-trough.
Fainé doesn’t have a crystal ball, but he does have the biggest branch network in Spain at his command. And unlike many other Spanish banks, La Caixa can probably afford the write-downs such a fall would imply. We have to assume he is well informed.
La Caixa are not alone forecasting more big falls. International rating agency Fitch say prices need to fall by 30 to 35pc peak-to-trough, or almost double what they have so far, before the market bottoms out.
Who am I to disagree with such illustrious names, but I have to point out an important flaw in all arguments that use the official house price index to show that prices haven’t fallen enough. The official index is more misleading than it is revealing. In reality average prices are down somewhere between 30 and 50pc, not the 18pc the index would have us believe.
This faulty index is a big problem for Spain. The index is taken at face value by international organisations and publications like The Economist, the OECD, the IMF, the European Commission, not to mention rating agencies like Fitch. Thus they all think Spanish property prices have only fallen 18pc and have much further to fall, when in reality the prices at which homes actually sell have fallen much more than that.
True, there is still a lot of over-priced property on the market, but what is a house price index supposed to show? Asking prices or sales price? The latter, of course.