Something interesting is taking place in the Spanish mortgage market. Though it could yet turn out to be another false dawn, it looks like mortgage lending is showing the first signs of recovery, with big implications for Spain’s sickly housing market.
The number of new Spanish mortgage loans signed in the last four months has risen by between 19% and 34% year-on-year, the first sustained period of growth of this magnitude since the market turned down seven years ago.
The chart above clearly illustrates how this is the most significant growth in Spanish mortgage lending since the wheels came off the Spanish housing boom in 2007. There has been only one other period of growth in early 2010, and that was short lived.
Do four months of double-digit increases in mortgage lending mean the mortgage drought is over? Not necessarily. There has been at least one false dawns in this crisis (2010), and this could be another. We need to see at least six months of growth to be confident about calling the recovery of mortgage lending. But this is certainly a good start.
Mortgage lending is crucial because it is both the lifeblood of the housing market, and the acid test of confidence in house prices.
Capital permitting, banks increase lending when the believe homes make good collateral, implying the don’t expect prices to fall much more, if at all. And Spanish banks should know better than anyone what’s happening to house prices: after all, they are the biggest property companies in Spain, with data to match.
When mortgage lending increases, more money circulates in the housing market. If supplies are tight that tends to drive up prices. But the housing inventory in Spain is not tight, though some segments like the centre of Barcelona are going that way fast.
Of course, banks willing to lend are just one side of the story. You also need willing borrowers, who have been thin on the ground this crisis. People without jobs, or fearful of losing their jobs, are unlikely to borrow even if the banks are willing to lend. If mortgage lending is growing, that means there are more willing borrowers, and banks ready to lend. That is good news on both fronts.
A sustained increase in mortgage lending is the first step towards a sustained recovery in the housing market. Let us hope this is the beginning of a sustained increase in mortgage lending, and not just another false dawn.