Tinsa House Price Index (Update)

In my last post on Santander's Banif, I meantion the following:

House prices in Spain fell January on January by around 10% and may fall by a further 20 percent this year according to a report last week from Tasaciones Inmobiliarias SA (TINSA), the country’s biggest property valuer.

In fact here I was referring to an earlier post, where I quote Tinsa's managing director Luis Leirado as follows.

House prices in Spain could drop 20 percent this year after falling 10.8 percent in January year-on-year, as sellers compete in a saturated property market, surveyors Tinsa said on Tuesday. "(Housing) stock is going to continue to stack up because the number of homes being finished is larger than the number of homes which are successfully sold," Tinsa's managing director Luis Leirado told a news conference. The average price per square metre was 2,044 euros ($2,649) in January, down from 2,273 euros the same month a year ago. "The price is falling between 1.2 and 1.4 percent a month," Leirado said. "If we continue at this rate, we could find ourselves with a fall of 20 percent (by the end of the year)."

Now an observant reader (Sylar) picks me up (and rightly so) for being rather sloppy:

There has been some confusion as to what can be inferred from the latest Tinsa index. Prices are not falling between 1.2 and 1.4 per month; the average price per square metre was 2084 in December and 2044 in January; that's a fall of 1.9 per cent. What I think Leirado meant was that the year-on-year fall was 8.8 per cent in december, and 10.1 in january (an increae of 1.3); if the year-on year fall kept increasing at that rate, it would top 20% by end of the 2009 (more specifically, it would range from 21.1 to 25.5%).You can find all TINSA reports here.

So I went to look at the Tinsa reports and here is what I found. As you can see in the chart below, Spanish house prices peaked around the end of 2007, since which time they have been falling.

But what is really, really interesting to see, if we look at the next chart, is how Spanish property prices were flying along in the 15% to 17% range for many quarters, and then suddenly the rate of increase turned south (approximately at the end of 2006 - surprise surprise, just after the ECB started really applying the pressure on interest rates), and since that time the line is more or less straight (ie the slope is fairly constant) and the deceration has been remarkably uniform. If this line continues in this way - and I can see no earthly reason why it won't - then prices will be decreasing at a rate between 20 and 25% a year when we hit next December, and the year on year rate of decline may well continue to accelerate into 2010. But basically it is early days to start thinking about that at this point.

So at last I have found a data set which looks to me like it is the real thing (even though there will of course be variance between one part of a city and another, and one class of property and another), and which we can now use as a kind of early indicator on the evolution of the property market. What we can say right now is that the first sign of a bottoming out in the property slump (not, note, in the general economic contraction) when we start to see that line levelling off.

But going back to the earlier post about Santander, what must now be starting to frighten the hell out of all those people managing those swelling bank property portfolios is that the prices of their assets will be falling at a 20% plus rate next December, and that they may even enter 2010 falling at an ever faster rate.

Bankers As Estate Agents

Actually, Spanish property buff has a good piece on how near some of the banks are getting to provoking "fire sales", which will surely only drive prices down even faster.

According to an article over the weekend in the Spanish daily ‘El Pais’, Spanish banks have lent a combined 300 billion to developers, and 600 billion to private mortgage borrowers. As the recession bites, defaults rates have quadrupled to 3.29%, back to where they were in May 1997, compared to just 0.83% in December 2007. As loans turn sour, banks are having to take back properties.

To deal with the situation, Spain’s banks are having to get back into the property sales game.

Santander, Spain’s largest bank, has set up Altamira Santander Real Estate to try and liquidate a property portfolio of 2.7 billion Euros. Hefty discounts will be used to shift the stock, which will be promoted online and in catalogues distributed in Santander’s branches. The bank’s 20,000 staff will get first bite at the apple.

Banesto will use its property arm Promodomus to try and shift a growing property portfolio of valued at 1 billion Euros.

El Pais reports that CAM Bank, Banco Sabadell, Unicaja, Caixa Galicia, Caixa Catalunya, Cajasur, Banco Popular, and Ibercaja all have similar initiatives underway. Caja Madrid, Caja España, Caja Navarra and Caja Canarias are also selling properties resulting from repossessions.

Amongst the most aggressive is CAM Bank, which has set up CAM Real Estate Opportunities (Oportunidades Inmobiliarias CAM) to dump quickly more than 450 properties with discounts reported to be around 20% and 100% financing.