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Fitch: Spanish House Prices To Fall Another 20%

Fitch Ratings comments today that Spanish house prices will likely continue to decline over the near-term and remain under pressure, at least until 2012. From the peak in 2008, Spanish home prices have declined 11,2% – according to the Fitch analysts the slide is moving towards 30%.

“Fitch estimates that there are over one million units of housing stock available for sale throughout Spain.”

Fitch Ratings


Fitch maintains its forecast of a 30% decline in Spanish residential property values, on average, from the peak recorded in 2008. The agency therefore expects that declining home prices will negatively affect existing Spanish RMBS transactions due to lower recoveries on defaulted loans over the near-term.

“Fitch believes that Spanish house prices remain over-valued relative to income thresholds and need to decline further to improve affordability dynamics,” says Rui Pereira, Managing Director and Head of Fitch’s Spanish Structure Finance in Madrid.

“The supply overhang of unsold homes, more pro-active sales strategies by financial institutions, and reduced credit availability are also expected to weigh on Spanish home prices over the near-term.”

Spanish house prices have gone through a nominal adjustment that statistics from the Ministry of Housing place on a national average of 11.2% for the period Q1 2008 to Q1 2010.

However, Fitch believes this aggregate data does not appropriately reflect current market conditions as the market has become increasingly illiquid.

Compared to their peak in mid-2006, home sales had declined 48% at the end of 2009 on a quarterly basis.

Market illiquidity is weighing on home prices and individuals forced to sell in the current environment are incurring significantly higher price declines than those suggested by the government index.

Fitch’s home price projection, which was included as a baseline scenario in the agency’s RMBS criteria addendum for Spain published on 23 February 2010, was developed based on the evolution of affordability measures in Spain, the house price long term equilibrium and the imbalances of demand and supply.

(For further information, please see the 23 February 2010 criteria addendum, entitled ‘EMEA Residential Mortgages Loss Criteria Addendum-Spain’, which is available at www.fitchratings.com.)

Spanish borrower affordability suffered significantly during the boom, with the number of years of gross household income necessary to acquire a property growing to 7.7 at the peak of the market from around 3.9 years in 1995-2000.

While there are unique factors in Spain to support a higher income multiple relative to other jurisdictions, including a high home ownership rate at approximately 80%, affordability measures look stretched in absolute and relative terms.

Affordability should be in the range of 5 years of gross household income in order to be sustainable, which would result in a 30% price correction from the 2008 market peak.

Despite a sharp contraction in housing starts, there is a significant oversupply of properties, which will take considerable time to clear. Fitch estimates that there are over one million units of housing stock available for sale throughout Spain.

This overhang results from years of overbuilding, particularly in coastal areas and city suburbs, and banking system housing inventory growth.

Fitch believes there will be significant variations around its average house price decline expectation, reflecting regional housing and economic differentials.

Markets along the Mediterranean coast, with a heavy second home component, are likely to experience the sharpest adjustments.


Here’s a copy of the press release.

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MoonTalk: Want To Buy A Greek Island?

German politician Josef Schlarmann says Greece should sell some of their 6000 islands, of which only 227 are inhabited. The Greeks are of cource not too found of the idea. What do you think? Should Europe start selling off bits and pieces to the Republic of China?

“We give you money. You give us Corfu.”

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Greece could sell some of its islands to raise money to pay off its debt is, several members of the German parliamentarians thinks. “Those that are insolvent must sell everything they have to pay creditors. Greece owns the buildings, businesses and uninhabited islands that could be sold to pay debts,” German politician Josef Schlarmann says.

Vice Foreign Minister Dimitris Droutsas is not impressed with the proposal to sell some of the 6 000 Greek islands, of which only 227 are inhabited.

“I have heard the proposals. Such proposals are not appropriate at this time,” he told the German television channel ARD television.

What do you think?

Should a bankrupt state be able to sell off land to pay their debt?

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Norway's GDP Fall For First Time In 20 Years

Norway‘s annual gross domestic product (GDP) measured in constant prices fell for the first time in 20 years. Both GDP and GDP Mainland fell by 1.5 per cent from 2008 to 2009, the national bureau of statistics, SSB, reports.

“Increased activity in general government contributed positively throughout 2009 and helped offset the downturn in the Norwegian economy.”

Statistics Norway

The downturn in the mainland economy started in the 3r d quarter of 2008 and continued throughout the 1st quarter of 2009. The drop in activity seized in the second quarter, and the last three quarters of 2009 shows a slight increase in economic growth.

From the 3rd to the 4th quarter, the growth in GDP Mainland Norway was 0.3 per cent. Export led industries and wholesale and retail trade contributed strongly to the drop in activity in the beginning of 2009, while business services was the main source of dampened growth in the second half of the year.

“Increased activity in general government contributed positively throughout 2009 and helped offset the downturn in the Norwegian economy,” the Norwegian bureau of statistics, SSB, says in it’s quaterly national accounts report, Thursday.

Increased Goods Production

Value added in manufacturing rose by 1.0 per cent in the 4th quarter, with production of basic chemicals and metals being the main contributors.

A decline beginning in the 3rd quarter of 2008 and continuing throughout the 2nd quarter of 2009 however, led to a fall in manufacturing by 5.8 per cent for 2009 as a whole.

“The decline may be tied to a drop in both domestic and foreign demand. The exemption was record high investments in oil and gas extraction which fuelled activity in parts of manufacturing industries.”

An increase in the production of electricity as well as fishing and fish farming contributed to a growth rate of 0.9 per cent in the production of other goods in the 4th quarter. Reduced activity in construction dampened the growth.

For 2009 as a whole, value added in production of other goods was reduced by 3.8 per cent.

Slowdown In Service Activities

Production in service producing industries fell by 0.1 per cent in the 4th quarter and dampened growth of GDP Mainland Norway. Financial intermediation and business services were the main sources of the negative numbers, while transport industries and wholesale and retail trade contributed positively.

“For 2009 as a whole, growth in service industries dropped by 1.0 per cent, mainly due to a sharp decline in business services, wholesale and retail trade and transport industries.”

Link: Statistics Norway

Protracted, But Moderate Recession

Activity in the Norwegian economy is likely to continue picking up, but no clear upswing is anticipated before the end of 2012. ” Several years of increased unemployment and only moderate wage growth are therefore in the cards,” the Norwegian bureau of statistics writes in a trend analysis.

The financial crisis, which hit with full force in the autumn of 2008, led to a major slump in the global economy and intensified the downturn in Norway. The decline was however limited by strong political intervention in the finance markets and expansive monetary and fiscal policies.

“Both the Norwegian and the global economies have been growing for a while now, but there is not expected to be a strong recovery in the next few years.”

Here’s the full analysis.

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