Official Spanish house price index invites ridicule

Official house price index

Spanish property price fell by an average of just 4.3% last year, according to the official house price index prepared by the National Institute of Statistics (INE). Everyone in the business knows that average prices fell much more than that, so why is the INE publishing figures that invite ridicule and risk making foreign observers suspect that the official figures in Spain can’t be trusted?

It’s an important question, but one I can’t confidently answer. The INE gets its data from the Notaries, so either the data is flawed, or someone is manipulating it, or I’m completely wrong, along with everyone else in the business I have talked to.

According to the admittedly anecdotal information I get from talking to lots of different people in the property business all over Spain, average prices are down something in the region of 40% since the peak around 2006 to 2007, and fell at least 10% last year, perhaps as much as 20%, which would be hardly surprising in a year marked by a massive property crisis and credit drought.

So how come the Notaries are saying prices fell just 4.3% last year, and by just 10% since the peak? Even more difficult to believe, they say resale property prices fell just 3.5% last year, and actually rose by 0.1% on a quarterly basis in the last 3 months of the year, all this at a time when mortgages were hard to get and credit conditions tightened dramatically. It doesn’t make any sense.

If the data is to be believed, 2009 was a much better year on a quarterly basis than 2008, as you can see from the next chart. The data would have us believe that prices fell by less than 1% in 3 out of 4 quarters last year, and by just 0.4% in 2 of them. How likely is that during a credit crunch, with a monumental property glut, dramatically falling property sales, 20% unemployment, and a shrinking economy?

If you are still not convinced then have a look at Murcia, a region devastated by the property crash. According to the INE’s index, prices didn’t fall at all in Murcia last year, having fallen a paltry 0.8% the previous year. But you try selling a new property on one of Murcia’s many golf developments and see how far you have to drop your pants to find a buyer. In the following table you can see how prices are said to have changed by region in the last 3 years.

To make matters worse, leading papers like El Pais accept the INE’s figures without doubt, despite the obvious questions they raise. Having first warned everyone waiting for prices to drop that they will be disappointed today’s El Pais goes on to say “It is true that, according to the INE, prices fell 4.3% last year. It is also true that quarterly price falls are getting smaller (-0.4% between October and December). And it’s now possible to find the first positive change: resales increased in price by 0.1% in the last quarter. That’s the first rise in 2 years.” The article does not at any point question the figures.

With figures like these I wouldn’t blame foreign observers from wondering if Spain is doing a bit of a Greece with its figures. In my opinion, these figures won’t fool anyone who counts.