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Abysmal Spanish Housing Market Gets Even Worse In October
If there is anything that the European banks' negative response to the LTRO's invitation to use "free money" and relever even as Europe faces a perfect storm of deleveraging in 2012 (a topic beaten to death by us here previously) is that the problem at the root of the European financial crisis is not a liquidity one - it is, and has always been one of solvency, or, said otherwise, a problem when bank assets do not generate enough cash flow to satisfy cash outflows from bank liabilities, period, the end. Everything else is irrelevant. And while the market is fascinated in complete noise such as at what price will Italian bonds price in minutes, what the real focus should be on is the state of the primary driver that led Europe into (and eventually will take it out of) the credit bubble- housing. Today, Bloomberg provides a quick update of the Spanish housing situation which can be summarized as follows: horrible and getting much worse, because as October data shows, lending has imploded, down nearly by half just from a year earlier, while the average price is down over 7%.
From Bloomberg:
Spanish residential mortgages decreased for an 18th month in October as banks reined in lending amid a surge in borrowing costs and bad loans.
The number of home loans fell 43.6 percent from a year earlier after a 42 percent drop in September, the Madrid-based National Statistics Institute said in an e-mailed statement today. Total capital lent on all mortgages fell 40.6 percent, it said.
Spain is struggling to digest a glut of 700,000 unsold new homes since the collapse of the building boom that has pushed the unemployment rate to 23 percent. Prime Minister Mariano Rajoy, who holds his second cabinet meeting on Dec. 30, has pledged to bring back tax rebates for mortgage holders and clean up an estimated 176 billion euros ($230 billion) of soured assets linked to real estate from the books of the country’s banks.
Bad loans as a proportion of total loans by Spanish lenders jumped to a 17-year high 7.42 percent in October, the Bank of Spain said on Dec. 19.
The average price of Spanish houses and apartments declined 7.4 percent in the third quarter from a year earlier, the National Statistics Institute said on Dec. 15.
Unfortunately, as banks continue to refuse to clear excess inventory
this kind of death by a thousand home price declines is why Spanish,
Italian and all other bonds will continue to not be bid, a process which
has nothing to do with how many trillions of euros the ECB floods the
market with.
And, incidentally, Spain is a great case study of the US housing market, where the dynamics are identical: slow motion bleed, as prices continue declining, inventory keeps building and banks are forced to recognize more and more bad assets. Only instead of doing it all at the same time, and pulling off the band aid allowing for the healing to begin, the gangrenous rot will continue to fester for many more years, never allowing the system even one chance to reset.
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DEFCON 1!
http://www.dailymail.co.uk/news/article-2079184/UK-prepares-emergency-me...
And it emerged yesterday that Britain’s borders could also be temporarily sealed against economic refugees from Europe if the collapse of the euro sparks widespread civil unrest on the Continent.
Brought to you by the Daily Mail, that bastion of balanced journalism...
The daly mail is an entertainment comic book. read by angry old people
They read it? Blimey, that's a worry, thought they bought it for the crossword..
Be interesting to see if the Spanish Real Estate Boom was initiated by the Introduction of the Euro in 1999 with stashes of Secret Account D-Marks in Germany and Central Europe looking for a property laundry in Spain before becoming worthless with the Currency Reform. There was supposedly a huge outflow from accounts in Luxembourg and Liechtenstein and SWitzerland into Spanish Property......if that were so then the pyramid scheme would just roll forward as long as credit was obliging
Partly right. Except that the money didn't come out of Luxembourg banks, it mostly came out of mattresses and secret stashes. Imagine if they said that the US was going to issue a new currency, and everybody had a month to turn in their cash and get the new bills. How much black market money would be looking for a new home, somewhere secret with no questions asked? Correct answer: a shitload. This has even been proposed in the U.S. to counter drug trafficking.
It was possible then to make a shitload of money trading euros or dollars for those mattress pesetas that the Spaniards had collected for years. Some had a lot of them that were a tax problem when they went to the bank to exchange them for euros. An American could trade the pesetas for euros or dollars without a spanish tax problem at a swiss bank if necessary.
When there's a new currency, there's always the tax collector asking whether you can prove you paid taxes on the currency that you're trading in. Free money for TPTB.
Actually, the boom was fuelled by American "investors", who wanted to make Spain the Florida of Europe. Aznar funnelled billions from these "investors" to low-quality construction firms and Spanish banks, so high mortguages could be given against low interest rates.
In return Aznar supported Bush and the Iraq war.
The northern Europeans (Brits, Germans, Dutch, Russians, Scandiavians) took the bait and started buying, as the northern European banks now also started to give very high mortguages for second homes, especially RBS.
The boom - more of a frenzied craze actually - got in full swing and real estate agents could be found on every corner. Hundreds of thousands of south-americans were imported to unleash a "concrete tsunami" on the Spanish coasts, destroying all but a few beautiful natural beaches and coastlines.
It started to taper off quickly though... "For Sale" signs started to appear everywhere, and the real estate agents disappeared. Then "For Rent" signs replaced the for sale signs ... and the rest is history.
Anyone could have seen this coming, and Aznar and friends knew very well it would be short lived. Very well executed though. "How to rob your people blind in 10 years, lesson 1".
Aznar funnelled billions from these "investors" to low-quality construction firms and Spanish banks, so high mortguages could be given against low interest rates.
In return Aznar supported Bush and the Iraq war.
////////////////////////////////////////////////////////////////
The great brotherhood of US citizens. Active world wide, few areas are out of their influence or power.
The current state of the world is the result of US citizenism, that started to take root and expand back in 1776.
US world order, you've got what you wanted.
You really think this whole mess began in 1776? Sure the US is the banker pit bull, but this goes back a very long time.
No, Fox tells me that it was Fannie Mae, Barney, CRA and Dodd. Without those four elements, a housing bubble and subsequent implosion was impossible.
the broken window FAILacy to the eth degree......
Those home price declines might be expected to be worse or may soon worsen. With 23% UE, there's not a lot of domestic buying power, and with youth UE nearly 50%, not a lot of young people are going to be able to put together a nest egg to make a down payment anytime soon. It also cannot be a good thing that banks levered anywhere from 15:1 to 30:1 have almost 7.5% of total loans gone bad. One doesn't need a calculator to see there is no such thing as Spanish bank equity.
Unless Brits create "Tapas-shire" to go along with Italy's "Chianti-shire" (aka Tuscany) or ME sheikhs do a nation-wide Mallorca, that 7% fall in home values might soon be looked upon as 'the good ole days'.
One has to hurt for Spain.
I recall what Jim Willie pointed out three years ago:
if the collapse of real estate prices can't be stopped, nothing else that is accomplished by TPTB even matters.
He was right. Real estate is the actual collateral that supports the whole financial system.
That's so 2007.
We have since learned that being "Too big to fail" is the actual collateral that supports the whole financial system. The residential and commercial backed securities will retain their original value as collateral to pledge to the central banks no matter how low the underlying property values go.
The central banks aren't going to make margin calls on the shit securities they've accepted as collateral. Doing so would destroy their balance sheets and take away their cover for taking in yet more shit securities and printing yet more bogus money. All Hell would break loose in the Financial System, and Saving the Financial System is the #1 goal of the central banks.
Thumbs up! Correct! And may I add as an ex Arthur Andersen Auditor, the Mark to Market accounting that started this whole cascade, and was subsequently repealed to Mark to Fantasy is probably the best decision to halt financial free fall. Although I don't agree with Mark to Fantasy, it is impossible to value securities in mark flux. Mark to Market must be initiated at the market bottom, not top.
The average Joe does not understand a Balance sheet. If an asset was bought 5 years ago for x, it most likely is worth x plus. They are conditioned to accept prices rises, and this extends to notions of value.
Very valid point and to think that untold trillions have been wasted in order to stop property the USA falling beyond the 37% fall since 2006 so far. But the madness doesn't stop there, now banks are looking to let out their six million + repossessions..wtf..couldn't they have just allowed the owners to stay in them and take reduced payments?
In the end, full speed rape puts the principal actors ahead of where they would be by "muddling through," presuming that was even possible after accepting reduced payments (acknowledging the inevitable slide). It's a perverse incentive, but moral hazard happens with intervention...
What if "fair value" is about 10% of today's asking price
as in the 80`s ? A 90% fall all at once ?
And things don't look as rosy as in the 80`s and the quality of construction is way down, so another cut by half then?
Most of the ugly construction disfiguring the Spanish coast
should probably be torn down anyway. After all the excessive
debt is purged from the system, property price should be
back to the nominal amount in pesetas as they are now in Euros.
The formula: wait a few years then offer the banks 10000 euros - or todays equivalent - for a house in spain
don't do it. not even for 10.000 euros.
these houses have no value.
Location. Houses in beautiful old european cities will always have some vaule; horrible concreate buildings built for old germans and brits on the coast may not.
Houses around granada, cordoba, sevilla, valencia, barcalona, madrid will always hold some kind of value...
However, the bottom isn't in yet, no way jose!
And any hint of an extra property tax a la greece will send the market tumbling further; you can't even rent these babies out, because young spainards are all abroad or unemployed
good point.
Most people don`t get that real estate can go well below
zero and become an outright liability because owners will
still be on the hook for rates and utilities and maintenance with no takers at any price.
At least you can walk away from a worthless pile of fiat,
bonded to "concrete gold" you will drown.
Five years ago they asked €250,000 for a little piece of land with a pile of stones on it. Now they ask the price of an acceptable house in Germany (in itself an expensive market) for a very small appartment of low construction quality. I have never seen so many "se vende" signs as in Andalusia this November. They do not need new construction for 30 years. I would rather not like to see the ugly buildings torn down now. Sell at market price and wait until they decompose - then start over.
andalusia is still a beautiful region
and maybe the chinese will need somewhere to live once they take over the olive oil and jamon industries
1) Bullish
2) Silver, bitchez!
I will be (bullish) once we see at least $5 knocked off the price
What about Italian Housing?
Any info available?
in italy it is quite different. there was never so much speculative housebuilding as there was in spain. italy is still an attractive country for tourists and pensionados.
house prices all over italy have fallen as well, but the italiens are not so much into private debt. I would still wait to buy myself a tuscan farm next to Sting. I will buy when the price has reached two pounds of gold.
Dominos falling Dominos falling
I wonder if the USA can sell the idea of FNM and FRE since they have done such a fine job. Yeah this is just great MOFO's
in spain there are far too many houses for the people that live there. hundreds of thousands of houses have been built just for foreign and domestic speculative purposes. nothing other than that.
I have been there. You can see endless areas along the coast full of low quality houses with almost no garden of land. thousands of houses together, all looking the same. a significant part of the coastal areas have been filled with this crap.
and of course nobody really wants those houses. they are only meant to be bought and sold to make money. they were never made to live in. and because of this, these parts of the spaninsh coast have been ruined and are now completely unattractive to people who want to buy a house to live in. after a week staying there, you get really depressed.
the only solution is to demolish most of these houses. this problem is goint to get much worse. and it will take a long time to solve it.
Blame the Brits, Nordics, Germans. I would dream of sunny Spain too if I lived in dreary Northern Europe. Great in June, July, August...but that's about it.
http://www.c-euro.org/index.php?option=com_content&task=view&id=592&Item...
Interesting article from a Swede
They will find good use for these empty boxes once the volume of North African refugees picks up.
Yeap Socialism does work after all. Just ask Asshole Rod
You haven't spent long in the company of spanish men if you think they will let African immigrants steal a) their jobs or b) their wive's part-time jobs. South american immigrants on the other hand ..
Who said anything about stealing jobs or women? Have another drink.
The Daily Mail is tabloid journalism at its uh "finest". I'll check in to check for the photos of chicks in bikinis and stories about cats and dogs. However what is striking about the "getting ready for monetary armegedon" story is how many places are linking to it. I think it is not so much for the amount of factual information in the article as to the fears of people that this could very well happen.
Yes but it is always a FOREIGN Armageddon for which our lovely ruling elite is preparing the poor Subjects. We have nothing to fear with our solid banking institutions but they might get caught in the vortex as Continental Banks go under in that "Made in USA" financial crisis Gordon Brown tried to resolve in his Captain Kircaldy Superhero role. Just as the USSR never reported a plane crash unless it could be linked to one in the West so we get creeping admission that we have a leak in the roof because floods have wiped out people elsewhere in Europe.
It is as Tyler mentioned in an earlier posting -
Why ECB's LTRO Won't Stop Collateral Contagionthe MSM is having problems keeping the Official Line and eventually all those FIRE adverisers and Government advertising cannot obscure the reality.......for the unitiated the UK Government is the largest single advertiser in the UK
Take out Spanish and enter US and the story is the same with the only differnece being the magnitude of fraud in our banking sytem, the level of ineptitude in congress and the idiots at the Bank of Rothchild.
please don't underestimate spain
I lived in Madrid for a long time and still own property there. Much of the housing built during the boom was junk and I don't think it will ever be inhabited. The banks own tons of this stuff but, are still asking outrageous prices. The Spaniards are a stubborn lot and will not sell until the wolf has entered la casa. How can anyone afford a tiny apartment in Madrid at 250000 euros if they are earning 1000 a month? Assuming they have a job. But, I still see banks willing to finance 100%. I love Spain but, la crisis is going to last a long, long time.
Time for those STD, EWP and BBVA puts to pay out!
Funny, my friend "fun bobby" whose birthday is today runs a small biz here in Chicago. INTERESTINGLY, he says the banks are squeezing like crazy which just confirms everything you read here. Seriously.
To wit: DO NOT PAY DOWN YOUR LINE OF CREDIT BECAUSE IF YOU DO THEY WILL JUST DECREASE IT AFTER YOU PAY IT. NO JOKE.
If you had 50k line of credit, and you used it all let's say....you pay down 20k so you have only 30k outstanding....they come back and cut you down to 40k total.
Kind of like giving them a gun and telling them to shoot themselves in the foot. Dig that grave quicker!
Hola- The thing is Spain has got it all backasswards. Instead of raising the retirement age, they need to lower it by 10 years. You have to have worked with a 60 year old Spaniard to fully grasp this. Their productivity is zero, while they cost a bomb. To fire them costs 45 days pay for every year they've been with their institution. And they know it. On top of sucking up all the oxygen their spending is minimal at best. They own the same house they have lived in for 50 years (Spaniards are like trees- they don't move), and they put nothing back into the economy. Best to let them retire and start to draw their social security. As a replacement companies could hire 3 twenty-somethings for the same cost, productivity would double, and all this cash would recycle into the economy. Job creation, velocity of money, housing, bars, all zoom...
Hola- The thing is Spain has got it all backasswards. Instead of raising the retirement age, they need to lower it by 10 years. You have to have worked with a 60 year old Spaniard to fully grasp this. Their productivity is zero, while they cost a bomb. To fire them costs 45 days pay for every year they've been with their institution. And they know it. On top of sucking up all the oxygen their spending is minimal at best. They own the same house they have lived in for 50 years (Spaniards are like trees- they don't move), and they put nothing back into the economy. Best to let them retire and start to draw their social security. As a replacement companies could hire 3 twenty-somethings for the same cost, productivity would double, and all this cash would recycle into the economy. Job creation, velocity of money, housing, bars, all zoom...
the Sun also ran said story. We know theyre fair and balanced right?
Spain housing prices fall 7.4% in long slump