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Official House Price Index rises in Q3 but don’t believe the hype

Spanish property house price index INE
INE House Price Index (annualised)

A small quarterly-increase in the official House Price Index does not mean that Spanish property prices have bottomed out, despite press reports.

Average Spanish house prices increased by 0.7pc between June and September, according to the official House Price Index published by the National Institute of Statistics, based on figures from the General Council of Notaries. This is the first quarterly increase in three years.

This minuscule rise has been widely reported in the Spanish press as the beginning of the end of the Spanish house price crash. After years of reporting nothing but bad news, I understand why the media might jump on the slightest bit of good news, if only to report something different for once – I do it myself. But the optimism is premature. As the Wall Street Journal points out the “INE’s data still doesn’t indicate Spain’s property sector has turned the corner”.

There are various reasons why it’s still too early celebrate the end of the great Spanish house price crash.

Firstly, this was just a quarterly increase, and you have to be careful comparing quarters. A more important comparison is the year-on-year figure, which was down 7.9pc, so house prices are still falling substantially, albeit at a slower rate than before (see chart above).

Secondly, transaction levels are now so low the average price can easily pushed up or down by a relatively small number of sales. As the notaries recently pointed out, fewer transactions means the index has become more volatile, making it difficult to draw conclusions.

Thirdly, the price increase was driven by sales of newly-built homes (prices up 2.3pc), most of which were repossessed by banks and sold with a price premium thanks to preferential financing that private vendors can’t match. In such a thin market this distortion can have an impact on the index.

Spanish property Quarterly price changes: new vs. resale
Quarterly price changes: new vs. resale

And finally, the Q3 house price index published by the Housing Department (Min. Fomento) was down 0.5pc on a quarterly basis, so it all depends on where you get your figures from.

Spanish house price index regional variations

There were significant regional variations in both the quarterly and annualised figures, as illustrated by the following graphs:

Spanish property Quarterly price changes: new vs. resale
Spanish property annualised price changes by region: Q3 (red), Q2 (yellow)
Spanish property Quarterly price changes by region
Spanish property Quarterly price changes by region

The INE uses data from the General Council of Notaries to prepare its house price index, so this small increase in Q3 (July – Sept) should come as no surprise. As I reported back in October, the notaries recorded a similar price increase in August, with spanish property prices up 0.7pc whilst house sales slumped 28pc. The latest figures we have from the notaries are for October (Q4), when prices plunged 12pc, so unless there is a miraculous turnaround at the end of the year, we can be fairly confident that the INE index for Q4 will be falling again when it is published early next year.

Even Ana Pastor, Minister for Public Works (pictured below), which includes the Department of Housing, says that “the sector still has room to fall,” commenting on the increase in the INE’s official House Price Index.

Urban land prices down 12.4pc in Q3

The latest data from the Ministry of Public Works (Fomento) also reveals that urban / building land prices fell 12.4pc in Q3 to 146 €/m2. On a quarterly basis land prices fell 8.6pc. In bigger municipalities with more than 50,000 residents land prices fell 25pc over twelve months to the end of Q3, to 258 €/m2.

There were 3,548 land sales in Q3, down 7pc on a quarterly and annualised basis.

The collapse in demand and price of building land in Spain is bound up with the excess inventory of new homes and the lack of credit. As a result, there are hardly any developers left standing and planning approvals are down by more than 95pc from the peak in 2006.

SPI Member Comments

2 thoughts on “Official House Price Index rises in Q3 but don’t believe the hype

  • It’s fair to say that when you are dealing with relatively few transactions an improvement doesn’t truly reflect the market. In Marbella, I know of a few high value transactions that would skew the average prices during this period.

    For what its worth I think that at the start of 2015 we will see consistent figures indicating the bottom of the market

  • looking back over the years house sales market cycles last approx 7 years, 7 years on the rise, 7 years crash, repeating over and over – so just work out when this crash started and count 7 years on to be able to forecast the ‘turn around’

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