Edward Hugh on the Spanish Property Market

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  • #55271
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    For those who don´t know of him Edward Hugh is a very highly regarded Barcelona based economist.

    This is on his Facebook blog. You´ll need to become a friend to read the full article plus the subsequent discussion:
    http://www.facebook.com/home.php?ref=home#/album.php?aid=97450&id=691899148&comments

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    Mortgages were down again in August, and Spanish mortgage lending dropped 24.2 percent year-on-year, compared to a 33.9 percent annual decline in July, according to the National Statistics Institute. The rate of decline compared with a record 56.2 percent drop in April. In August, the average value of mortgages approved during the month dropped 11.6% annually but was up 0.8% on a monthly basis.

    But if you look at the charts I have put up, it is far from clear that this could be called stabilisation. There is very little real selling going on out there, the number of mortgages is still down 59% from the March 2006 peak, and the number of mortgages that “changed conditions” ( or restructuring) was up 61.7% (and novations were up an annual 91.5%) as banks attempt not to declare mortgage loans delinquent. Which was why I was surprised to find Housing Minister Beatriz Corredor on Radio Nacional d’Espanya today saying that the market has now “stabilised” – whatever that actually means.

    “El número de hipotecas de vivienda suscritas en España bajó a 52.482 en el mes de agosto. Supone una caída del 6,6% con respecto al mismo mes del año pasado y un descenso del 11% sobre el mes de julio. Sin embargo, la disminución es inferior a la de meses anteriores, y por este motivo, la ministra de Vivienda, Beatriz Corredor, cree que los datos confirman una “estabilización” del mecardo inmobiliario.”

    (Little biographical note, as I work on all these postings I am an avid fan of RNE’s Radio Classica, which is how I saw this blurb on the website).

    In fact Banco Popular, Spain’s third-biggest bank, refinanced about 1.1 billion euros in loans in the first five months of the year, or about 1.17 percent of its 96 billion-euro loan book, according to Chief Financial Officer Jacobo Gonzalez-Robatto. The total amount of refinancing on the bank’s books stands at about 2.45 percent of loans, a figure equivalent to about 2 billion euros.

    Spain’s banks – including Popular, Banco Sabadell and Bankinter are now busily divulging details of their loan refinancing following the recent debate about whether Spanish lenders are under-reporting (or hiding) loan losses amid rising defaults by companies and consumers.

    The amount of refinancing compares with the 5.1 billion euros on Popular’s books classed as “dubious” at the end of September. At the end of September last year, dubious assets stood at 2.2 billion euros.

    Popular’s ratio of bad loans to total lending hit 4.63 percent from 2.19 percent a year ago, the bank said today. Popular expects loan losses to peak in 2010 and stands by its estimate that the ratio will end this year less than 5.5 percent, Gonzalez-Robatto said.

    According to Daragh Quinn, an analyst at Nomura International in Madrid, Popular’s higher-than-average lending to finance real- estate and construction, which reached 32 percent of its loan book in 2007 makes the bank quite vulnerable to defaults.

    Spanish house sales were down 20.3% in July when compared with July 2008, with a total of 37,039 homes changing hands. 50.5% of these were new according to data released today from the National Statistics Institute (INE).

    The interannual rate was thus down over June, when it stood at 25.5%. In fact, month on month sales were up 4.7%, although over the first seven months of the year as a whole there was an inter-annual drop of 33.1%.

    However, it is clear that sales have been improving now since April, which was definitely the worst month to date, with monthly sales down 65.1% over the January 2007 peak.

    In July monthly sales were still down 55.75% from their peak. The improvement evidently reflects growing pressure on people to sell, at prices which are still dropping by the month, and where the total quantity of funding available for mortgages remains more or less stationary. That is to say it would be rather foolish to expect any real rebound in total value realised at this point – quite the contrary.

    As I say, prices are still falling, and in this context there tend to be what you could call lies, damn lies, and press releases, since according to the latest of these from Spanish valuers TINSA – “The general IMIE (Spanish Real Estate Market Index) continued to soften its year-on-year fall in August, recording 8.9% compared to 9.2% the previous month.”

    Well, this IS interesting isn’t it. It appears that things are getting better. Well no, actually, they aren’t. This data point is a complete statistical anomoly, based on the fact that prices have now been falling for more than 12 consecutive months, in such cases year on year data becomes virtually meaningless.

    Indeed the most valid measure now is the P2P one I have introduced (peak to present) since using this we can see how far the indicator moves around. See next chart.

    In absolute terms, the index continued to fall from the figure recorded in July 1983 to that of August 1964. In terms of accumulated rates, the general index dropped 14% from the maximum recorded in December 2007.

    No Early Recovery In Spain

    Claims by Spanish Prime Minister José Lluis Rodriguez Zapatero, and Economy Minister Elena Salgado that they could see signs the Spaish economy would recover soon had a bucket of cold water poured over them yesterday by European Commissioner for Economic and Monetary Affairs Joaquin Almunia who predicted Spain would continue to remain in recession until the end of 2009,
    Almunia warned the Spanish economy could shrink by 3.7 percent in the current year, about half a percentage point worse than previous expectations, and even this could prove optimistic since my current calculations indicate a contraction of 5%, and even this has downside risk if the goverment are forced to cut back strongly on spending programmes.

    “The recession is less deep than the European average, but it is going to last longer. The reason for that is the adjustment from the disequilibriums which have accumulated over the last 10 years,” Almunia said, referring to the construction boom, external deficit and conyinuing reliance on ECB funding in the absence of external investors willing to offer finance at affordable rates.

    Some More Background

    In this series you will find a number of charts which should help to better understand the Spanish crisis.

    Among these are two which show the evolution of real interest rates in Spain between 2000 and 2008. It is obvious that between 2002 and the middle of 2006 Spain had a totally inappropriate interest rate, and this is the period when all the damage was done. Since the bank of Spain was not taking the decisions at this point, it is hard to blame only the Spanish administration for what has happened, and all levels of EU administration need to ask themselves what responsibility they have for the current mess.

    The number of houses sold in Spain fell 25.5 percent in June compared to a year earlier, marking the 18th straight month of decline, according to the National Statistics Institute.

    The number of houses sold in Spain fell 25.5 percent in June compared to a year earlier, marking the 18th straight month of decline, according to the National Statistics Institute.

    The fall in June sales to 35,372 units compared with a decline of 32.2 percent in May versus the same month of 2008, and a 47.6 percent drop in April, the largest drop since the sales decline began. But even though the number of sales has picked up very slightly in recent months, the monthly volume is still down 57.75 percent over January 2007, which is the relevant statistic in a decline which has now been continuing for so many months.

  • #94854
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    the adjustment from the disequilibriums
    that is going to take years. assuming the Spanish economy can find other sectors that can replace house building / construction. Any suggestions ?

  • #94859
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    Yes, get all the hidden €500 notes out of the black economy & use the land for solar panels etc.

  • #94860
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    @shakeel wrote:

    Yes, get all the hidden €500 notes out of the black economy ……

    A notary was shot dead on Monday in Torrevieja apparently in a bungled robbery attempt.

    This is the amusing bit that was reported:
    “The attack is strange as generally business at the notary is carried out with cheques and not cash”. 😆

  • #94861
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    There is some truth in that statement. The Cash is physically in the notary’s office while the deed is being done Once the seller & buyers walks out the cash moves out with them.

    Yes, with his fees, charges & taxes that the Notary collects is still in his office and this could be a sizable sum if a few transactions have taken place on the day.

    Anyway, the way I see it one Notary less, What a parasite of a profession.

  • #94887
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    shakeel wrote:
    There is some truth in that statement. The Cash is physically in the notary’s office while the deed is being done Once the seller & buyers walks out the cash moves out with them.

    Yes, with his fees, charges & taxes that the Notary collects is still in his office and this could be a sizable sum if a few transactions have taken place on the day.

    Anyway, the way I see it one Notary less, What a parasite of a profession.

    I suppose the robbers were really there for the brown envelopes that are stuffed with cash. The notary was unlucky as normally they disappear for a coffee when the brown ones are being exchanged between buyers, sellers and bankers . Case of being in the wrong place at the wrong time. “Parasites ” is a bit strong but I agree it is not a very honourable profession.

    I am amazed that more mayors, heads of planning departments in town halls have n´t been bumped off by disgruntled property buyers. As far as I know only one mayor has been bumped off and that was in Polop de la Marina ,on the Costa Blanca.

  • #94964
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    Edward has just published another long note about the state of the Spanis economy. It makes grim reading.

    “The arrival of the 5 million immigrants kept Spain’s population median age below the critical 40 level for a few more years, and sustained housing demand for as long as the good times lasted, but if many migrants now pack up and leave and at the same time we have a surge of young educated Spanish people also leaving, then the median age will be pushed beyond the critical point, and the Spanish land and housing market, like the Japanese one, will simply never recover. Which means we are in danger of entering a continuing downward spiral, and path dependency dynamics are everything here, and lack of reaction amounts to the same thing as throwing in the towel before you start.”

    Full article here:
    http://www.facebook.com/note.php?note_id=201325181118&ref=mf

  • #94994
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    The Notary was actually going to the rescue of a pregnant member of staff when he was shot dead at point blank for 400€
    It beggars belief that people can consider this amusing or be so flippant about death regardless of his proffession.
    He leaves a young family behind.

  • #95009
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    happylarry wrote:
    The Notary was actually going to the rescue of a pregnant member of staff when he was shot dead at point blank for 400€
    It beggars belief that people can consider this amusing or be so flippant about death regardless of his proffession.
    He leaves a young family behind.

    My comments were not” flippant” of course the death of anyone is a sad event,
    I feel for his family , unfortunately he worked in a job which is not very highly regarded and many of his profession has caused untold misery to thousands of good people, it is inevitable that people will see the irony of the situation irrespective of the particular facts and circumstances in the Torrevieja case.

  • #95011
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    I am sorry but trying to justify comments by saying that the legal system has ripped off thousand of Brits does not cut it.
    Everyone should be judged individually on their own merits.
    Do we laugh when a doctor is killed because of the legacy of Harold Shipman?
    There are few too many people on forums that cast aspersions and generalise and reading through some of the posts on here seem to be experts by default.

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