I sat down and did a bit of data cracking. The correlation between the contraction in mortgages and the implosion in the house market quite frankly startled me.
First, lets see the reduction in the number and amount of new mortgages in Spain. Data comes from Statistics Spain and EuroStat.
New gross mortgages in Spain and their number. Non-amended data.
Next, we can see that the house price index seems to follow the total gross new mortgages downwards.
New mortgages (12 month moving average) and the house price index in Spain
But what is seriously scary is the correlation between the change in house prices and the change in new mortgages. A correlation of 0.99 is practically unheard of!
The fall in the house prices is due to the utter collapse of the mortgage market. The dire deflationary spiral in the housing market in Spain is almost perfect!
Good luck turning this around with a bit of austerity!
Interesting observations, but I'd suggest that what you're actually witnessing here is the dominant position that de-leveraging banks now have in the real estate promotion business. They are only lending to facilitate transactions that rid them of their repossessed housing stock.
ReplyDeleteThe number of house sales particularly, and property sales generally, has not been as affected as you might imagine by the drop in mortgage issuance. Home sales are essentially flat at 20-odd thousand a month since April 2011 with spikes due to changes in tax treatment.
Interesting is the amount of cash that is being used in the property market. Mortgage issuance and property sales have become increasingly less correlated since the end of 2010. This chart illustrates that.
What has to be turned around are the deflationary expectations now embedded in the minds of house buyers. How the 'bad bank' is managed will be crucial.
Love your blog, btw. Exemplary.
Cheers Charles! That would in fact at least partially explain why the change in mortgages doesn't front run the change in house prices more than it does. I was wondering why when I cracked the data.
ReplyDeleteThe post is telling about house prices in Spain and mortgage rates. Useful post
ReplyDelete"The number of house sales particularly, and property sales generally, has not been as affected as you might imagine by the drop in mortgage issuance" nice observation Charles! The chart provided all the details very well.
ReplyDeleteFrom the chart analysis, the mortgage just slightly affected the house prices.
ReplyDeleteMost people interested mortgage.The correlation between the contraction in mortgages and the implosion in the house market quite frankly startled me.
ReplyDelete