STOCK MARKET WATCH -- Wednesday, 25 January 2012

[Ghost Dog]

53. Spain’s Home Prices to Fall With Bank Cleanup

A cleanup of real estate on the books of Spanish banks will contribute to a decline in property prices that will make homes available to more people, Economy Minister Luis de Guindos said.

Spanish banks are “filling up” with real-estate assets such as apartments that aren’t going to market because they’re not being priced properly, de Guindos said in an interview with state broadcaster TVE today. When they are priced at their real value “we’ll find that the price of housing in Spain will fall more, there’ll be an adjustment and it will be available for a lot more people,” he said...

... House prices, which more than doubled in the decade through 2007, turned negative in the first quarter of 2008 and have since fallen by about 17 percent, according to the Ministry of Development and Public Works. Prices fell 8.2 percent in 2011, accelerating their slide, and sellers should brace for further declines this year, the property website Idealista.com said last month.

/... http://www.bloomberg.com/news/2012-01-25/spain-s-de-guindos-says-home-prices-to-fall-with-bank-cleanup.html

Spanish Prime Minister Mariano Rajoy’s proposal to force banks to recognize further losses from real estate holdings may backfire by saddling healthy lenders with the bill...

... Rajoy wants to make banks accurately value assets piled up on their books as part of his efforts to lower Spain’s borrowing costs and free up the flow of credit in the economy. Investors demand about 763 basis points more yield to hold Bankia SA (BKIA)’s senior unsecured bonds maturing in 2017 than similar German bunds, up from about 46 basis points when the securities were sold in 2007...

... Rajoy wants to avoid committing public funds as he battles to bring down a deficit that was 8 percent of gross domestic product in 2011, exceeding the 6 percent target from the outgoing Socialist government. He announced 15 billion euros of immediate spending cuts and tax increases last month to narrow the gap...

... Rajoy’s reluctance to deploy public money compares with the strategy of the U.K., where taxpayers provided 1 trillion pounds ($1.56 trillion) for bailouts and guarantees to shore up the financial system. As part of the U.S. response to bolster its banking industry, the Congress authorized the $700 billion Troubled Asset Relief Program in 2008, of which $411 billion was dispersed.

/... http://www.bloomberg.com/news/2012-01-25/spanish-cleanup-plan-may-backfire-on-banks.html

I cannot fault this move from the new 'rightwing' government, now that the banks and savings banks should have been shored-up enough to face reality and mark these assets to market. I reckon overall residential (and holiday-home) property prices have another 15% or 20% at least to fall before we're through, depending on the duration of the depression. This move could stimulate some employment in the sector, too, where a great many skilled and experienced workers have already been layed-off two years or more now.