Thursday, January 3, 2013

State of the Spanish Mortgage Market

This is a matter at the frontline of the Spanish crisis as it was the housing boom that turned to bust which affected her construction sector and her banks severely and then rippled out into the rest of her economy. Unfortunately the Spanish system of deferring many of the problems from this for her banks means that the effects are on-going as in the end they catch-up and we see more signs of this in her latest mortgage numbers. The average amount of mortgages in September presents an annual fall of 8.0% and amounted to 109,503 euros The value of mortgages on urban property is 3.631 million euros, representing an annual decline of 35.7%. In homes, borrowed capital exceeds 2,170 million euros, 37.1% less So we see that if mortgages are any guide house prices in Spain are still falling and on a year on year basis are falling at a substantial rate. Also we see that in volume or quantity terms we are still seeing very large year on year falls in mortgage lending. Indeed we can see the scale of the problem by looking at mortgage lending for dwellings over the past few Septembers in reverse order from 2012 going back to 2007. 2.17 billion Euros; 3.45 billion Euros; 6.35 billion Euros; 7.37 billion Euros; 8.9 billion Euros and 15.4 billion Euros Whilst the 15.4 billion lending figure in September 2007 was a product of the boom and accordingly in itself cannot be used as a benchmark we see that we have veered to the other extreme now. Compared to the same month in September 2007 we see that mortgage lending for dwellings in September 2012 was 14% of the total then. So it would appear that for all the claims of the opposite the Spanish mortgage and banking system looks to be still in trouble and is getting worse. If we look for more evidence of this we see that the savings banks or cajas appear to have retrenched even further and the emphasis is mine. Banks are the institutions that granted greater number of mortgage loans during September (77.2% of total). Savings banks granted 9.1% and Other financial institutions 13.7% So they are providing a smaller percentage of a much smaller amount. Not much sign of health there! Also their existing loan book must be increasingly underwater. We do not get a breakdown by sub-sectors but we did learn from the Bank of Spain a week ago that provisioning against doubtful loans reached 182.2 billion Euros in September which is up from August’s 178.6 billion. So far in 2012 bank loan books have shrunk by just under 4% whilst doubtful loans have risen by just under 27%. As you read that I suspect that it is not only my imagination which is thinking that the situation at the cajas is probably much worse than that. Something to recall when the bailout of the Spanish banks is announced and claimed to be a smaller amount than expected. A “surprise” will then be along sooner or later with the former more likely than the latter. Also in an era of supposed ZIRP (Zero Interest Rate Policy) I did wonder about this in the mortgage statistics. In the case of housing, the average interest rate is 4.12%, the lowest since June 2011 Borrowers will welcome any fall but 4.12% seems a long way from ZIRP and the 0.75% borrowing rate that Spanish banks can get at the ECB does it not? Another hidden subsidy…

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