Wednesday, December 28, 2011

Spanish mortgage market continues to collapse [update]

A Bloomberg article reports on the on-going collapse of the Spanish real estate market.

According to the article,  the value of mortgages funded in Spain decreased by over 40% since last year.  At the same time, house prices in Spain declined by 7%.

All this while the banks were allowed to hide their bad real estate exposures.

As previously discussed on this blog, it would make sense for the Spanish government to require banks to provide ultra transparency as part of the effort to address the real estate exposures.  By requiring banks to disclose on an on-going basis their current asset, liability and off-balance sheet exposure details, all market participants could see that the real estate exposure is properly valued.

The advantage to the Spanish government of requiring ultra transparency is that the Spanish government will not be required to a) bailout the banks or b) set up a bad bank to acquire the assets.

Instead, the banks can workout the bad real estate assets while all the market participants watch!

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... 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.

Thanks Ignacio for the link!

1 comment:

Ignacio said...

Just to clarify: the statistics mentioned in the Bberg article released by the satistics office do not correspond exactly to monthly money lent for house purchases because those numbers include some pre-existing mortgages that have been modified during the month. Also, since data are collected from registry offices there is a delay and mortgages registered in a particular month correspond roughly with mortages signed (and money lent) two months before on average. So october data roughly corresponds with mortgages issued in august. Banco de España releases another monthly statistic corresponding with total money lent by banks for house purchases, for consumption and "other uses". You can find it in chapter 19.18 in the statistics page of BdE.

That is a real indicator of current developments, not a lagging one.