Government & IMF Disagree Over Spanish House Prices
October 20th, 2009
Spanish house prices are starting to stabilise and now is the time to buy, says the Ministry of Housing. The IMF forecasts even bigger falls to come.
Not everyone agrees.
“Talk of a slump (in prices) is no longer fitting” said an official from the Housing Ministry yesterday during a press conference for the Ministry’s latest quarterly housing market figures. National average prices have fallen 8% over 12 months, from 1,780 Euros/m2 at the end of September 2008 to 1,634.7 Euros/m2 today. In real, inflation-adjusted terms, prices fell just 7%.
Anunciación Romero, head of architecture and housing policy at the Ministry, said the trend has turned towards prices stability and urged buyers to get back into the market to benefit from lower prices and interest rates.
Not everyone agrees. “This annual drop was a surprise as we were expecting prices to begin falling by double-digits before the adjustment had ended,” Felix Lores, a consultant at financial analyst house AFI, told Reuters. The IMF forecasts even bigger falls to come.
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. So far they have fallen just 7% in nominal terms, according to the Ministry of Housing’s figures. In real terms they have fallen just 6% since their peak.
In the USA, where arguably there was less of a bubble than in Spain, property prices have fallen some 30 to 35% from the peak, so the adjustment in Spain has been trifling in comparison.
Prices may have been cooling since 2005, but they only turned negative this year. Given the severity of Spain’s economic problems – 20% unemployment, a monumental housing glut, and a credit crunch – does it make any sense for property prices to turn around so quickly? Is there even one good reason why prices have fallen far less in Spain than other comparable countries like the USA, the UK, and Ireland?
In reality, prices may have fallen by more than 20%, and still be falling, the explanation lying in dodgy official figures.
‘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 Forbes
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