Foreclosures near record lows despite downbeat economic outlook

Spanish foreclosures and bank repossessions
There was a brisk trade in bank repossessions like this one back in 2014

The number of foreclosures initiated in the second quarter was close to a record low despite rising inflation, rising interest rates, global turmoil, and a gloomy macro-economic picture at home. 

There were 4,596 foreclosure proceedings recorded in the Spanish Land Registry in the second quarter, down 24% compared to the same time last year, and the second lowest level on record according to data recently published by the National Institute of Statistics (INE).

Foreclosures in Spain

As you can see from the chart above, foreclosure proceedings (leading to repossessions) have been declining since 2014, when the data series published by the INE begins. There was a big drop in Q2 2020 thanks to the pandemic and lockdown, with a corresponding spike year-on-year in Q2 2021 when normality returned. Since then the trend has continued down.

Of the total 4,596 Spanish foreclosures in Q2, 437 were new homes including those still under construction and in the hands of developers, down 44% on last year, whilst occupied-home foreclosures (4,159) were down 21%. 

Spanish foreclosures new and used homes

By region the biggest number of foreclosures took place in the Valencian Community, followed by Andalusia. The next graph illustrates foreclosures in a selection of regions of interest to foreign investors.

foreclosures in Spain by region q2 2022

The next chart shows foreclosures in the second quarter every year from 2014. If you exclude 2020, when lockdown distorted the numbers, Q2 this year was the lowest on record, 43.5% lower than 2019, and 76% below 2014 when foreclosures were still high in the wake of the Spanish real estate crash at the turn of the previous decade.

Spanish foreclosures

Spanish bank repossessions

Back then there was a brisk trade in bank repos as the property market started recovering, and new buyers took advantage of the big discounts offered by banks and funds off-loading repossessed homes, confirming the cold economic reality that one person’s loss is another person’s gain. 

With inflation now close to 10%, interest-rates rising, and the macroeconomic situation not looking promising, you would expect a growing number of borrowers to struggle with monthly mortgage payments. However, there is no sign yet that foreclosures are on the rise, so the prospects of bargain-hunting for bank repos remain slim for now. 

Perhaps that’s because the world has changed dramatically in the last 10 years, and now the focus is on protecting ‘the vulnerable’ from all comers like Covid, eviction, and repossession. The Spanish press reports that the government is pressurising lenders to come up with measures to protect ‘vulnerable’ borrowers from rising interest rates. Furthermore, many more borrowers today are on fixed-rate mortgages than back in 2014 and, despite the recent rise, interest rates are still low by historical standards.

With rising interest rates, high inflation, high unemployment, high public debt, a high government deficit, a fast-rising fiscal burden on the economy (though still below the EU average), and a government that includes the hard Left pressing for expensive public intervention in the economy – in particular the housing market – it’s easy to imagine the Spanish economic situation deteriorating next year. Spanish foreclosures are likely to rise with an economic downturn, but for now that remains more a worry than a reality.

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