A summary of the latest Spanish property price data and forecasts from a variety of sources, plus a rant about the inaccuracy of official figures.
The latest house price index from the National Institute of Statistics (INE) shows that average Spanish house prices fell 12.6pc in Q1 compared to last year (resale -13.3pc, new build -11.8pc), as illustrated by the chart above. That is the biggest annualised fall since the crisis began, with declines of almost 15pc in regions like the Balearics and Catalonia (see chart below, red bars for Q1).
The monthly house price index published by Tinsa, a leading appraisal company, showed a decline of 11pc in May compared to the same time last year, with house prices on the Mediterranean coast – where most holiday homes are located – down 14pc, and a peak-to-present fall of 38pc (24pc for Spain’s Balearic and Canary Islands). The Tinsa figures are more accurate, in my opinion, but are still too rosy.
It seems the measures recently introduced by the Government to bring down house prices are having some effect. Or maybe we are just reaching the point where official figures can no longer keep up the pretence that house prices haven’t fallen as much as they have.
The reality is that the prices at which properties actually sell are down by between 30pc and 50pc (my estimate, but as good as any).
Rosy official figures are no laughing matter. They cause people to wait for price falls that have already happened, which just drives the price down further, and drives away foreign investors.
And the problem is that all the most influential organisations take official figures at face value. Here are some of the latest price forecasts based on them:
“The fundamentals point to a big additional fall in Spanish house prices” say the rating agency S&P. “Despite the fact that house prices have fallen 22pc in nominal terms since the first quarter of 2008, our economists expect a further fall of 25pc, based on fundamentals.”
Morgan Stanley / The Economist – latest edition
“The reluctance to cut losses has delayed the adjustment in house prices, which have fallen by 25% from the 2007-08 peak, according to various indices,” reports the latest edition of The Economist, taking official data at face value. “Irish prices, in comparison, have dropped by roughly half,” The Economist goes on. “Even though Irish prices rose more in the boom, Morgan Stanley, a bank, reckons that 50% could be on the cards for Spain, too, with the bulk of the remaining correction this year and the next.” So Morgan Stanley are forecasting a peak-to-trough fall of 50pc, which might have already happened, for all we know.
José García Montalvo & Funcas
Property market expert and academic José García Montalvo, writing in the latest economic report from Spain’s Foundation of Savings Banks (Funcas), says we can expect Spanish house prices to fall another 35pc, giving a total peak-to-trough fall of 53pc. “With the information available, it seems obvious that the house price adjustment isn’t over,” writes the professor from Spain’s Pompeu Fabra University. Once again, based on official prices.
Real house prices (after adjusting for inflation) will fall another 17pc in the next 2 years, according to Ahorro Corporación, a company that belongs to Spain’s savings banks. There are 1.6 million homes for sale in Spain, with annual demand of between 150,000 and 175,000 homes, meaning it could take between 9 and 10 years for all the properties on the market to sell. I assume their calculations are based on official figures.
Ahorro Corporación warn that prices could fall as much as 35pc to bring housing affordability back in line with its long-term average of 4x household income, compared to 6x according to the latest figures from the Bank of Spain (chart below). “We have to see price falls of 35pc in relation to salaries to bring prices back to pre-bubble levels,” says the report. House prices rose to 7.6x household income at the height of the boom.
On the question of housing affordability, at least one other study is even more gloomy. A new report by the international estate agents Era finds that housing affordability in Spain, where house prices rose 160pc in the boom, is 7x income, compared to 3x in Germany, where prices only rose 10pc. Official figures used I expect.
Who’s that going to fool?
It’s no secret that Spain is in denial on the property price front. “Spain should face the economic reality, even if they have to value property loans at discounts of 40, 60 or even 80 percent,” said Alan Ahearne, former economic adviser to Brian Lenihan, the finance minister who presided over Ireland’s response to the near-collapse of its financial system, quoted in Bloomberg Businessweek
. “If the real losses aren’t faced up to, who’s that going to fool?”
One of the best things the Spanish Government could do right now is produce some reliable house price data, and fast!