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Fiscal Distortions Behind Surge in Home Sales

Spanish home sales, source: General Council of Notaries.
Spanish home sales, source: General Council of Notaries.

The Spanish property market appears to be both crashing and surging, if headlines are to be believed. In reality fiscal distortions are just playing havoc with Spain’s already unreliable housing market numbers, so the latest reported surge in sales needs to be taken with a pinch of salt.

The latest numbers from the General Council of Notaries say home sales surged 40 per cent in March. But the week before last the figures from the National Institute of Statistics showed that Spanish home sales plunged 24 per cent in February. Is the Spanish housing market going up and down like a yoyo?

Far from it. In reality, the market is neither surging or crashing, just bumbling along the bottom of the crisis. The startling figures are simply the reflection of fiscal distortions that will wear off in the next few months.

The latest numbers from the notaries show that home sales in Marched rose 40pc year-on-year, to 26,602, after surging 59 per cent in February, but crashing 20 per cent in January. The notaries say this is the start of the “normalisation of the figures after the end of mortgage interest tax relief”.

Some of Spain’s leading papers couldn’t resist reporting this illusory increase in sales as the starting gun to the housing market’s recovery. That was wishful thinking. The underlying trend is still heavily depressed, even though house prices apparently rose 0.6 per cent in March to 1,189 €/m2, after jumping 9 per cent the previous month.

Mortgage credit starts to flow again

New mortgage lending expanded in February “in keeping with the growth in home sales,” say the notaries. New mortgage lending rose 35.9 per cent, though the average loan shrank 6.8 per cent to €104,157. The proportion of homes purchases financed with mortgage borrowing rose to 34 per cent, with loans-to-value up to 75.6 per cent. “The figures could be anticipating a change of trend or at least the end of the downward spiral,” say the Notaries.

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