The crash in home prices in Spain is re-accelerating. Bloomberg data shows the drop in Q4 as the third worst drop YoY ever and the fastest rate since September 2009 taking prices back to March 2005 levels. As WSJ [6]reports, Spanish banks hold more than EUR400 billion worth of loans to the construction and real-estate sector, back by collateral that is now losing value at almost record paces. Is it any wonder that the banks are seeking state-guaranteed debt issuance [7] (as no-one will touch them directly) as "the outlook remains bleak, with the demand for housing expected to shrink throughout 2012 with debt-laden households struggling to cope with a devastated labor market and limited access to credit." Perhaps today's disappointing Spanish auction (weak demand) is the first reality-seeking canary in the LTRO-enthused coalmine of Spanish and Italian self-dealing as the real-money vigilantes start to bet actively against Spain in favor of Italy (which trades tight of Spain for the first time this week since August). Spanish banks need more cowbell LTRO (but what collateral is there left) to fund more support for their local govvies.
Spanish housing (and unemployment) is re-accelerating to the weak side again...
[8]
and markets are not missing that point as Italy now trades inside of Spain again having hugely outperformed post LTRO, but more critically, Spain is now widening (as opposed to not tightening as much)...
[9]
Chart: Bloomberg