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!