Saturday, March 30, 2013

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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2 comments:

Theran Seaton said...

Still waiting on that Picture of Juan. I just recieved Canadian Healing Oil in the mail, I had to pay an arm and a leg and convince someone to use a credit card. Either way I got a copy. I will visit your blog twice a week until I make some leeway on this picture. :)

Charles Butler said...

Yeah, they sure are expensive. Is there not a photo on the dust jacket? Because that's about the only one there is of him over 18 years old. Let me know. The other choices are scans of a couple of news photos.

Lemme know and where to send them to if you want them. Enjoy Healing Oil. I love it.