That home repossession issue

A big headline political issue in the aftermath of the property bubble has been the matter of home repossessions. Spearheaded by an activist association known as the 'Plataforma Afectados por la Hipoteca', there appear regularly on television news confrontations between authorities attempting to evict insolvent homeowners and groups of a few tens of persons blocking their progress. That this program is not entirely futile can be seen at the PAH website. As to how widespread the incidence of physically forced evictions actually might be, the Bank of Spain has just published the results of its first survey of Spanish banks in this regard. It covers the year 2012 and a screenshot of the data table is above.

Keeping in mind that the BdE surveyed banks holding about 85% of outstanding mortgages in the country and that all figures refer only to private individual debtors, a few points stand out:

Total home repossessions amounted to about 0.6% of outstanding mortgages..

Repossessions of principal residences about 0.5%.

Nearly 21,000 of the 39,000* total were returned to the bank voluntarily and three-quarters of these were dations - the outstanding debt was fully satisfied by the transaction.

There were 18,000 judicial repossessions, 46 percent of the total.

Of these, 3,000 took place with the property still occupied by the owners or tenants.

Surprisingly low perhaps, at a bit over 10 percent,  is the number of outstanding mortgages classified as being for secondary residences.

Repossessions of these, however, amounted to about 17 percent of the total, 22 percent of court-ordered and 19 percent of those with people living in the property.

We can think of a few explanations for the last figure. They range from the benevolent allowing family members to occupy the flat to being stuck with in-arrears renters to a couple of available strategies that it was hoped would prevent the foreclosures.

Not to opine on the gravity of the problem, but readers might keep all this in mind when they come across news articles that imply that that there were some 92,000 home foreclosures in Spain last year. This figure refers to repossessions of all types - residential, commercial, industrial, agricultural and raw land - exercised on owners of all types - individuals and corporations.

*Readers can multiply these figures by 1.17 to arrive at a good estimate of actual totals. Total repossessions, for example, would be about 46,000.

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Cash is king, get out of cash

The three or four of you who keenly await the monthly update of the 'Credit Conditions' chart in the right sidebar will not only note a change in this edition - we've included another line for the 12-month average of house sales - but will also be marveling at the fact that the 39,670 house sales registered in January were fueled by only 25,447 new mortgages. Simply, more than 35 per cent of all sales were entirely cash or involved some kind of off-the-record payment plan.

Comparing the same data for the latest three months of January - all showing elevated numbers of sales because of end-of-year changes to the tax treatment of residences (and keeping in mind that registry documents are released one to two months after the sale takes place), we come up with the above chart.

Incorporating the INE's mortgage value figures, we can also take a (very) wild-eyed guess as to how much extra cash has been devoted to keeping Spanish house sales nearly perfectly flat over the last 13 months, despite economic conditions.

Assuming that:

1). Average mortgage value is a suitable proxy for home prices

2). Mortgages are, on average, for 80 percent of house value

The 45 billion euros that may have been spent on home purchases in the period have been 33 percent cash funded - that's 14.4 billion euros.

The easy conclusion to be drawn here is that the desire to own a first, second or third home is overpowering  a limited interest in extending credit on the part of banks - especially if it involves a home not owned by themselves. But that doesn't quite wash. It might be better to think of this as a side effect of Spain's banking and economic crisis and its influence on Spaniards' normally far from deep natural faith in the value of money.

Because of reporting lags and the Easter break, we won't really get a bead on this until summer, but the recently enacted 'solution' to the Cypriot banking disaster may in fact prove to be a boon to the Spanish real estate sector. Most analysts expect home sales to decrease notably in 2013, by the way. If they don't, you'll know why.

As an aside, most outsiders would say that all this is attributable to money laundering. I'm not convinced of that this late in the game - especially after having witnessed (neither as a principal nor an agent) a couple of transactions recently in which all was, surprisingly - especially considering the characters involved, completely above board. Perhaps it's still a factor in rural land deals, but with the banks being the major players in the residential market pricing has become very transparent.

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The ECJ eviction decision and Spanish banks

Catching a few eyes this week was the European Court of Justice decision in favour of a family that had their home repossessed for non-payment of the mortgage. The Spanish banks have not put up much of a fuss and the government itself has assured that it will introduce legislation to codify the conclusions of the trial judge.

The chart on the left, showing the age of current sufferers of job losses at the time real estate went bust, goes some way towards explaining this quiescence. Home repossessions are not a huge problem for the banking system because employment (although certainly not in the quality sense) has actually increased in the age groups that would have been house buyers at the time.

A few other items of interest:

1). The specific grounds for the consumer protection suit were that the bank could not proceed with a foreclosure order before judgement had been handed down - in another court - on a dispute concerning the original mortgage contract.

2). The ruling further agreed that the mortgage's conditions - specifically the clauses that allowed the bank to foreclose on one missed payment and the interest rate charged on arrears - were not acceptable.

3). The ruling does not generalize beyond this specific case and is probably, seeing as the judge's comments referred to family home and such, not usable (at least in spirit) in cases of second homes building lots, industrial units and so forth.

4). Restricting the foreclosure definition to principal residences, it's hard to find anyone claiming that there have been more than about 40,000 such evictions since 2007. The 220,000 figure quoted by those with an interest in the matter refers to all types of properties. The banks will gladly pay to get this public relations nightmare to disappear.

5). As for the politicians, the only protest movement that might have the legs to challenge the tenured parties is the PAH. Anything to get a bit of wind out of their sails. 

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Automotive politics

It's fascinating to witness the immense cathartic effect that the PP funding scandal has had on leftward-leaning Spaniards. Now, with the lifting of last year's endless negative news flow relieving them of having to consider the possibility that Mariano Rajoy was maybe doing the Right Thing, they can revert to that age old national pastime of allowing even the slightest of incidents to release a torrent of invective blaming the opposing political faction for everything bad that has ever happened... ever. On this rainy Madrid Friday evening, it was the passing of a brand new Toyota IQ.

The ease and rapidity with which the conversation passed from the Japanese entry into the car market up to now dominated by Smart to the fact that Aston Martin has based its city two-seater, the Cygnus, on the IQ to the possibility that Luís Bárcenas had bought one of the latter vehicles for his wife caused the mind to reel in amazement. Life can be very simple sometimes. From one side of the fence, a new make of automobile instantly eliciting a blind obsessive rant about the Partido Popular, corruption, cutbacks and the front month pork belly close at the Merc. From the right side (any time prior to July 2011, say), the mere rising of the morning sun giving adepts ample and sufficient reason to foam at the mouth about José Luís Rodríguez Zapatero.

My main complaint, on the other hand, was that this was all taking place in a Volkswagen Golf - instead of the Jag that was left parked in the garage.

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The Spanish unemployment mystery (part 2)

Now at the other end of the cycle with respect to our last entry, the chart shows the decline in GDP for every job lost since 2008.

Readers will note that we only included years in which GDP has declined relative to 2008.... and both Germany and Austria are missing. The figure for the former is over 1.4 million euros - a reflection of the fact that their unemployment insurance is in fact an employment subsidy. In the case of Austria, it is 530-odd thousand euros - too big for the graph to scale and possibly attributable to something similar. In the case of the Netherlands, employment increased in 2009, despite a decline in the general economy. We'll just pass on it and start with 2010. Countries disappear from the graph as GDP rises above 2008 levels.

Catching our eye again are Spain and Portugal. Just as it took little GDP growth to produce a job in the 1995 to 2008 period, it required a very small drop in a recession economy to remove one. By the end of 2011, a mere 11,000 euro decrease in GDP corresponded to a lost position in Spain. In the case of the latter country - the amount is a supremely silly 2,600 euros.

Neither number is particularly credible unless one makes the assumption that unemployment insurance benefits and other subsidies are very high relative to wages. Better to think of both as signifying a massive return to an underground economy.

A start in the correct direction might be to compare Spain with that other real estate bust economy - Ireland. Calculating backwards, had Spain reduced employment at the 79,000 euro GDP rate job losses would have amounted to 310,000 instead of the official  2,155,000. It's very far from a perfect calculation, but it should point one to the right analytical path

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The Spanish unemployment mystery (part 1)

The three most obvious features of the chart of Spanish unemployment rates since 1985 are: a). the 2012 figure that draws so much attention is not really news. It's not even a record., b). the historical minimum is a bit over 8 percent in 2007 - a crisis number in almost any other industrialized economy, and c). to our knowledge, the fabric of Spanish society did not disintegrate into fascist, monarchist, socialist, communist or even anarcho-syndicalist chaos in 1994.

What the statistics do attest to are: a). a non-binary distinction between work and unemployment in the country's fairly large mass of temporeros and jornaleros. These precariously (and willingly so in many cases) employed will be inclined to pick the negative when asked if they are working or not, b). that Spain's unemployment insurance system is regularly treated as a basic guaranteed income rather than as what it is intended to be. This is a kind way of saying that cheating is uncontrolled and that every person who is doing so is also answering 'no' to the LFS surveyor.

The picture on the left, although result of a number of moving parts, gives an indication as to the extremes these attitudes reach. It shows the euro value of the increase in GDP per person increase in employment from 1995 to 2008. The simple interpretation is that people who were already working admitted to that in public, so to say. Our guess is that this is related to the increase in firm size - particularly if related to construction - that brought many small builders or plumbers and their staff on to the income tax and social security radar.

The incredibly rapid rate of job losses in 2009 we suspect is caused by the opposite effect. Lower wages, part time work and a generalized downsizing being subsidized by unemployment insurance.

Coincidentally, this just in....

On our way to miss the 2013 budget target for unemployment benefits... again twitter.com/JMAafi/status/…
— Jose Manuel Amor (@JMAafi) March 5, 2013

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Spain's international balances on a roll

Sorry for the absence... that time of year.


December current account balance at an all-time record surplus of 4.9 billion euros. For 2012 in its entirety, the deficit improved to around 0.8% of GDP.









Spain's international trade balance, calculated on a 12-month basis, continues to set new records. As of year-end 2012, it now stands at positive, 14.65 billion euros.







The income account continues to show the effects of all that repatriation of government debt that was sponsored by the ECB's 3-year LTRO programs. One might expect this to reverse over the coming months as foreign term holdings of Spanish bonds have recuperated to summer 2011 levels. On an annual basis, there is no expectation of it becoming positive in the foreseeable future.

The remaining current transfers account also came up heads. That's typical of both November and December, with the month of February (for whatever reason) usually seeing a notable reversal in this figure.

Still predicting a 12-month current account surplus by this summer.

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Spain's CA surplus sets all-time record

Spain's October current account balance.

October 2012 - 1.78 bn euros
August 1998 - 1.54 bn euros

Fueling it - second highest goods exports on record, continued low income outflows, two-and-a-half year low in outbound transfers and normal seasonal rise in inbound

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How does that work? - rural mortgage version

We wrote in a piece last September that the sudden bump in mortgage issuance relative to property sales (of all types) was 'Likely the last vestiges of undercapitalized late entry pre-sales taking possession of their homes..'

Sounds good in theory, but further investigation proves we were looking in the wrong place.

On the left is a graph showing the progress of both rural property sales and mortgage issuance for the same indexed to March 2007, accompanied by a bar chart representing what percentage the latter represented of the former. A bit of background would in order.

The government of Spain may periodically go on about money stashed away in 'fiscal paradises' and such, but the one they never mention is their own rural property market. Between ridiculously low tax valuations that allow a mere token price to be registered on the deed and the amazingly paper-light agricultural income tax reporting requirements of Hacienda, those huge amounts of cash money made in the real estate boom could be made to disappear without ever crossing a border. And rest assured,  they were.*

But why, all of a sudden and as property sales collapsed, do we see rural property mortgage issuance almost triple relative to actual sales? And how many of these post-boom mortgages were among the 54 billion euros worth fobbed off on SAREB at the end of December?

Suggestions welcome in The Comments Zoo. Evil conspiracy interpretations admitted (this time only).

*And we aren't even mentioning the aversion real end users - Spanish farmers - have towards taking out bank loans. The countryside is a cash universe.

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Foreign bond holdings back to July 2011 levels

The Tesoro has released Spanish monthly bond holdings statistics. Through November, foreign term holdings (the ones that actually count) have recuperated to levels last seen in July 2011. Judging by the success of December's and - especially - January's emissions, it wouldn't be far-fetched to guess that these would be close to record levels when the figures come out. Aproximately March 25. The domestic banks have been net sellers over the same period.

For the binarily challenged, that means they haven't been buying.

Since the April LTRO-fuelled low in foreign term holdings, out-of-country investors have effectively picked up all of the Treasury's net issuance.

The downside to this is that the country's current account balance will be giving up the 1.5 billion euros gained during last winter's spell of ECB-financed debt repatriation.

The zero sum-ness of balance sheet recessions.

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