Spain: Too Soon to Talk of Economic Recovery

September 24th, 2009

There is increasing talk in the Spanish press about an incipient recovery in the housing market, largely based on some statistics suggesting the collapse in sales might be bottoming out.

Beatriz Corredor, Spain’s Minister of Housing, says you can now buy with “no worries”. Is she right? First of all, what evidence is there the market has touched bottom?

Spanish property prices are bottoming out, suggesting that the market is approaching a corner, according to the latest report from Tinsa, an appraisal company. The problem is, do you believe this data? It smells fishy.

According to Pedro Pérez, president of the G-14 group of Spain’s biggest developers, new sales contracts (pre-sales) stabilised in the second quarter, after 2 years of continuous falls.

Pre-sales “could have touched bottom” says Pérez, but he also concedes that sales are still feeble.

That said Metrovacesa, one of Spain’s biggest developers, and a member of the G-14, reports pre-sales up 82% in the first 6 months of this year compared to the same period last year. Good news? Yes, but in revenue terms results were almost the same as last year’s low, thanks to declining prices.

Other developers in the G14 report that sales are being made (which, in itself, is a big improvement on last year), mainly thanks to discounting.

The collapse in Spanish property sales appears to be running out of steam, according to the latest monthly sales figures from the National Institute of Statistics (INE). There were 33,694 home sales in July (not including social housing), the biggest monthly sales figure this year, and only 19.6% lower than the same time last year.

And according to figures from the Ministry of Housing, home sales in the second quarter were 8% higher than in the first, as the market display signs of life. “The impression we have of the property market is one of paralysis, but in the last 12 months almost half a million homes have been sold,” Corredor is quoted as saying.

Corredor also argues that, thanks to lower property prices and lower interest rates, housing affordability has improved dramatically in the last year, meaning that people can now go ahead and buy “tranquilamente”, which I would translate as “with no worries”.

Housing affordability has improved from 40% of gross household income in the second quarter of last year to 31% now, according to figures from the Bank of Spain, reported in the Spanish press. “With low interest rates and mortgages that allow them to live comfortably, without stress at the end of the month, families can now go ahead and buy a home without any worries,” was how Corredor put it (my translation).

But The Spanish Mortgage Association (AHE) says it’s “still too soon to talk of a recovery” in a new report just released.

Whilst noting a recent upturn in sales, which it attributes to improving housing affordability driven by lower interest rates , the report worries that the improvement in affordability may run out of steam, as interest rates are now almost as low as they can go.

That means, looking forward, greater housing affordability will have to come from a “prolongation in the adjustment in prices” and an economic recovery that creates jobs and lifts consumer confidence.

But right now, Spain’s economic recovery is still just a twinkle in Prime Minister Zapatero’s eye.

Story from Mark Stucklin

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