Differentiating Spanish House Price Data
February 16th, 2010
Did you do calculus at school? How much of it do you remember now? I remember having particular difficulty understanding integration and differentiation. I also remember thinking “When am I ever going to need this in real life?”.
As it happens, an understanding of differentiation would have been quite useful this week in making sense of the latest TINSA Spanish house price index.
If I remember correctly (highly unlikely), differentiation is concerned with the rate of change of change (yes, change is in there twice). So, for a travelling vehicle, we can use it to measure how quickly it is slowing down (the rate of change of a change in speed). For house prices in Spain, we can use it to measure how quickly they rise or fall.
The reason for this mini maths review is that one of the TINSA graphs is particularly difficult to interpret – because it charts the rate of change of their index.
The graph shows a nice upswing starting early last year – and it’s tempting to interpret this as “things are on the way up”. However, thanks to differentiation and the calculus lessons I never paid attention to, the correct interpretation is “things are getting worse more slowly”.
That’s not to say that the latest TINSA report is all bad news – just that the data needs to be understood in context.
The same is true of the index of asking prices which we collate at Kyero.com. Although we’re not doing any differentiation wizardry here, when you realise that we’re charting asking prices – which have barely changed since 2005, one possible interpretation is “house prices have barely changed in Spain in 5 years”.
Of course, thanks to other independent data and your own common sense, the correct interpretation is “asking prices in Spain haven’t changed much in 5 years” – leading to the likely conclusion: “asking prices bear no relation to actual transaction prices”.
The reason I mention this is that last week, one of the largest property portals in Spain, Fotocasa, reported “Prices rose by 0.6% on average, with the regions of Cataluña, and La Rioja seeing the greatest recovery in price at 4.6% and 4.5%”
On the face of it, this seems like very good news and evidence that a partial recovery in house prices may already be underway. However, Fotocasa’s data has the same bias as that of Kyero – asking prices. Again, the only ‘fact’ we can take away from Fotocasa’s announcement is “some vendors are asking more for their property in some areas now”.
As I commented about one article last week, just because a vendor raises their asking price, doesn’t mean that anyone is willing to pay it.
Turning to government data to gain insight into the property market is equally frustrating. The data from the Ministry of Housing is based on valuations and is highly suspect because it doesn’t describe the market dynamics we have all observed first-hand.
The data from the National Institute of Statistics does track actual notarised property transactions – but does not account for the money that continues to pass between buyer and seller “under the table”.
So, despite the weaknesses of the TINSA index – and the limitations of my brain to make sense of the rate of change of change in their index, in my opinion it’s the best we’ve got because ..
- They’re an independent company without an obvious political agenda
- Their methodology has been consistently applied since 2001
- Their data accurately describes what we’ve seen with our own eyes
What the TINSA data tells me is that Spanish property may not yet be at the absolute bottom – but it’s not far off.
Martin Dell, Kyero.com
Related Posts
- TINSA House Price Index October 2009
- TINSA House Price Index May 2009
- Tinsa Spanish House Price Index March 2009
