August 2009: Bottom of the Spanish Property Market?
October 16th, 2009
Home sales in Spain, not including social housing, fell 9.9% in August compared to the same time last year, according to the latest figures from the National Institute of Statistics (INE).
A 10% fall may sound bad, but given the form this year it’s actually rather good.
Spain’s leading daily El Pais suggests this another sign that the market if finding a floor, pointing out that this is the smallest year-on-year fall since the INE began publishing this data in January last year.
On the other hand, August 2008 was itself a bad month, so maybe the comparison isn’t so flattering. Sales in August 2008 were down 40% on the preceding year, and fell 18% on a monthly basis.
Nevertheless, the year-on-year sales trend has been improving since April. That said, on a cumulative basis sales this year to the end of August were still 32% below the same period last year, and 51% down compared to 2007.
If you break down sales into new build and resales you notice an alarming deterioration in resales during August, only offset by the steady performance of new build sales.
Resales, traditionally the biggest segment of the market, have lagged new build sales almost since Spain’s property market slump began, but looked like recovering in July. We will have to wait a few more months to see if resales ride to the recovery of the market or not.
Spanish property prices began to deflate in the second half of 2008 after the global financial crisis paralysed mortgage lending and exposed a market glut of almost a million unsold new homes, equal to stocks recorded in much larger economies.
Shrinking economic output, soaring unemployment and family and small business debt of around 200 percent of gross domestic product would mean a continued reevaluation of Spain’s overpriced property market, economists said.
A Reuters housing poll of Spanish and foreign-based economists found that on average prices were expected to fall 32 percent from their 2007 peak.
The number of houses sold in Spain fell 8.2 percent in August from July, the first monthly drop after three consecutive monthly gains indicated that, while the initial sharp drop had slowed, any market recovery would be weak.
“Third quarter figures indicate the drop in Spanish property prices is stabilising, but any talk of a recovery should be viewed with caution,” the department of economic studies for savings bank Caixa Catalunya said.
Prices would continue to shrink for at least another four quarters, economists at the savings bank said.
Banks showed little sign of loosening their hold on new credit, one economist from M&G Valores said, after Spanish mortgage lending fell 33.9 percent year on year in July.
Bargain hunters with capital to back loans would help take the edge off a plummeting market but any recovery would be weak until banks again started to lend more widely, the M&G Valores economist said.
Story from Mark Stucklin and Forexyard
