Spanish Property Prices Really are Stabalising

24 Apr 2010

Pressure on house prices in Spain's depressed market appeared to ease somewhat in the first quarter, falling 4.5% on an annual basis, which was less steep than has been seen in prior periods.

Property for sale in Spain house prices fell 6.2% in the fourth quarter and 7% in the third quarter, according to data from the Spanish Housing Ministry. Housing data can be erratic in Spain, but overall, there appear signs that price pressure is easing somewhat from the worst of the crisis that began when the market began to crumble in the second half of 2008.

Property Web site TINSA reported last week a 1.7% fall in first-quarter house prices versus the previous year when prices fell 3%. TINSA said house prices fell 5.3% on an annual basis in March, versus a 5.5% fall in February.

A year ago, those prices were down 9.7%.

Meanwhile, the National Statistic Office last week reported a 7.2% rise in February home sales against the prior month and 18.7% on an annual basis. It was the second straight month of gains after a rise of 2.1% in January.

The Spanish economy leaves much to be desired though, with unemployment running at nearly 20%. It also continues to linger in a harsh global spotlight, as markets fret over Greek debt woes and focus on the abilities of other weak economies, such as those of Spain and Portugal, to finance their debt and emerge from recession.

In a note to investors on Monday, Deutsche Bank analysts said there are signs of improvement in Spain's economic situation. However, they said, the "current subdued recovery is only possible because the fiscal consolidation process has not really started."

"The second half of the year, with the impact of a 2 percentage point value-added-tax rate hike on an already constrained consumer spending, may be disappointing," said the analysts. Any recovery in domestic spending currently, they said, is likely an attempt to dodge that upcoming VAT hike.

And any rebound in transactions on the housing market probably stems from the looming phasing out of the "tax holiday" on mortgage payments, which they said will likely trigger a reversion of much of the gain in economic activity in first half 2010 into the second half of 2010.

The government's medium-term plan is to reduce the deficit to 3% by 2013, in line with its commitments under the European Union's Stability and Growth Pact. In order to achieve this, it plans a fiscal adjustment of nearly 10% of GDP.

Economists and financial markets believe the deficit-reduction goal may be far too ambitious, considering how deep the recession -- driven by a collapse in the housing and construction market -- has been for Spain.

In our view, the main challenge to public debt sustainability in Spain does not primarily lie in fiscal management. The government clearly is committed to deliver on structural fiscal consolidation. It is more the fragility of the economy which may derail the containment of public debt," the analyst said.

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