The chicken or the egg
Perhaps the demonization(sometimes deserved, but not always) the real estate sector (obviously, there have been scams or that property speculators are rampant in the industry to alter the prices to rise quickly have other entrepreneurs targeted real estate) has contributed to the search within the sector the main cause of the debacle that even today (and it seems that for a long time to come) is ongoing, much has been said of excess supply (the built sector much higher than demand could absorb theoretically) as the main cause of the housing crisis, and we should not minimize the fact that it was built at a rapid pace and, quite possibly, excessive.
But the truth is that the stock of unsold new homes is estimated in many studies (most alarmist), based on the projects endorsed by the Colleges of Builders, which in 2006 accounted for a whopping 865,561 homes build (an average of 72,130 homes per month), as seen in the first article of this series , new home sales and purchases peaked (since monthly data are available) in January 2007, with 33,480 homes new borne. Was constructed, therefore, at a rate in excess of 40,000 homes each month (more than 450,000 homes were without buyer querdarían each year to continue that pace) while these figures for 2006 were indeed exceptional (the figures in previous years were around 15,000 homes per month or over 200,000 annually), it is evident that with these figures, an adjustment was made in the tender.
The problem is that projects are no more visas than that project. Many of these projects would become sales, but many would never materialize, the figures for the certification of work completed and evidenced: the 8,112,724 houses planned since 1992, only 5,251,381 have materialized. Thus, the maximum housing built was reached in 2007, with 547,285 (an average of 45,607 homes per month, which is 12,127 more than the purchases that occurred in January 2007).
If we take the number of dwellings completed since January 2007 we see that according to the certifications are 1,434,102, while according to the visa (given that must elapse between 18 and 24 months until they completed the projects) would be 2319 530, the number of new homes transmitted from January 2007 is 901,285, so that the mismatch between supply and demand would take as either data, or from 1,418,245 to 532,817 homes. According calculations Ministry of Housing, the stock accumulated in 2009 (which includes calculation accumulated since 2004) would be 688,044 homes (34,366 for Castellón), more in line with data from the certificates to the visa (used regularly by certain ultra-liberal media such as Digital Freedom , as shown in this article, 2008 or it for this week ).
As also saw the second article of the series , housing prices have experienced falls new peak of 10.73% in the whole of Spain and 15.49% in Castellón, far below the 30% or the 40% are handled in certain circles, of course, stock figures experts who manage some and pace of current sales and construction, unsold new homes could not absorb up to elapse between 10 to 15 years making it clear that the price adjustment would be consistent with those figures or even higher. However, the figures housing stock based on the visa is unrealistic, so the expected price decline based on these data it is also true, as indeed seems to show the latest official figures on prices (see updating of data from this series of articles .)
Although current purchases figures are around the 225,000 new homes a year (about 19,000 households per month), in 2005 there were more than 430,000 purchases (about 36,000 per month) and it was not until 2008 when operations fell of the 300,000 annual; remember that the financial crisis erupted in August 2007 and the number of mortgages granted began to drop sharply (with declines of over 30% on-year) just this month, as shown in the graph below (in March 2008 almost 50,000 mortgages were granted less than in March 2007).
Is the decline in the number of purchases resulted from oversupply? In all likelihood, affected the decrease in the number of purchases in 2006 and 2007 (until the outbreak of the financial crisis inter-specific decreases were close to 10% in the number of mortgages granted), especially when reports began to appear speaking of price declines of up to 40% by the exorbitant theoretically of housing stock was being accumulated, those on-year declines in the number of purchases of between 10% and 20% were able to respond to the crisis within the real estate, but is difficult to explain the extension in time (This will be the fourth consecutive year of crisis in the sector) if we consider that at the time which had to start the recovery (sectoral crisis is difficult to find more than two years, so that by mid-2008 should have initiated a slight comeback that never came) was booming financial crisis.
Since the demand for housing needs of a funding source, and it was not available (in January 2009 were granted a 58% mortgage less-less-than 72,000 two years earlier), the reason for the stagnation and decrease in the number of purchase transactions from 2008 we have set nonexistent in demand (due to lack of funding due to the liquidity crisis in the financial sector), not only (or mainly) to the excess supply, it is not, therefore, a supply crisis in the housing sector what we're seeing at present, but a crisis of demand for the concatenation of the financial crisis to the crisis in the construction sector.
Should further lower prices for new housing and an oversupply? On a sectoral crisis, possibly be a solution to revive sales, but if there is demand for the existence of a parallel financial crisis, the variation in sales prices has no effect on the market since any appeal that might have on the demand-adjusted prices would be completely cut off by the apparent inability to access funding to carry out the sale transaction.
The average amount of mortgages will help us highlight the main contradiction of the theories that say that house prices have continued to fall, the decline in the average value of mortgages granted has come to 26.71% from its highest levels, while prices have fallen just over 10% (based on data covering the whole of Spain). May 2007 marks the point inflection in the number of mortgages as on the average, beginning in August the sharpest falls in both variables, what would be expected that the number of mortgages condedidas accompany the number of house sales and the average amount of mortgages to accompany sales prices of homes. But that's not what happened.
The number of purchases and then fell in 2006 and continued doing so in 2007, while the number of mortgages peaked until May 2007, totally unrelated to the sales figures of the construction sector, financial institutions continued to give more and more mortgages until, in May 2007, Lehman-Brothers and similar investors start to flee mortgage funds and lack of liquidity is beginning to show in the financial market. Starts this month, a slight decrease in the number and amount of mortgages granted, it would become a real setback since August, just after the announcement of the bankruptcy of U.S. Blackstone, American Home Mortgage and National City Home Equity and the German bank IKB and after the subsequent while urgent multibillion-dollar, coordinated liquidity injections the Fed, the European Central Bank, the Bank of Canada and Bank of Japan. However, the sharp decline in the number of mortgages granted (58% from May 2007) is nearly equal to the decrease in the number of purchases (a 53.16%), having matched approximately two variables, although the pace of the fall has been very uneven (much more pronounced in number of mortgages that later collapsed and whose fall has been much higher).
With these data in hand, it is safe to say that housing prices have to go down, since currently the sector's main problem is excess supply, but that this is a common problem the rest of the economy: the financial sector provides loans and, therefore, demand does not exist. This being the main problem, of falling prices in the construction sector would be effective only if it reached a level that buyers do not need a loan to buy a home, as this is completely unworkable, the theoretical reductions in prices housing will continue to be minimal (in fact, prices are starting to pick up), since development companies know that demand will not be able to deliver (the number of mortgages granted by the financial sector is at levels lower than 2003) for much lower prices.
addition, if we add the data the average amount of mortgages Condec (which rose from 152,481.96 € in August 2007 to € 111,753.36 in August 2009, which represents a drop of almost 30%) can come to understand the current behavior of the application: they can only access a mortgage who have a particular capacity savings, so that the few mortgages that are granted are as borrowers who do not need funding beyond 60% or 70% of the price of each home or in any case, the immediate economic future is not going to see obscured by market circumstances.
So while home prices have been adjusted only 10% in four years of housing crisis data from the financial crisis (a decline of almost 30% in the average amount of mortgages and 70% in the total amount awarded, over 18,000 million euros a month awarded in January 2007 has been less than 6,000 million euros-) completely put into question the theories that argue about the only valid option supply crisis in the construction industry, when there is a crisis actually galloping demand due to financial sector crisis.
In short, we can point to the egg (excess supply) as an initial source of the real estate crisis, but we can not keep pointing to the egg from the moment the hen (The lack of demand by the lack of funding for the purchase) appears as a clear and dominant player in the current situation of the construction sector.
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