Did you do calculus at school? How much of it do you remember now? I remember having particular difficulty understanding integration and differentiation. I also remember thinking “When am I ever going to need this in real life?”. As it happens, an understanding of differentiation would have been quite useful this week in making sense of the latest TINSA Spanish house price index . If I remember correctly (highly unlikely), differentiation is concerned with the rate of change of change (yes, change is in there twice). So, for a travelling vehicle, we can use it to measure how quickly it is slowing down (the rate of change of a change in speed). For house prices in Spain, we can use it to measure how quickly they rise or fall. The reason for this mini maths review is that one of the TINSA graphs is particularly difficult to interpret - because it charts the rate of change of their index. The graph shows a nice upswing starting early last year - and it’s tempting to interpret this as “things are on the way up”. However, thanks to differentiation and the calculus lessons I never paid attention to, the correct interpretation is “things are getting worse more slowly”. That’s not to say that the latest TINSA report is all bad news - just that the data needs to be understood in context. The same is true of the index of asking prices which we collate at Kyero.com. Although we’re not doing any differentiation wizardry here, when you realise that we’re charting asking prices - which have barely changed since 2005 , one possible interpretation is “house prices have barely changed in Spain in 5 years”. Of course, thanks to other independent data and your own common sense, the correct interpretation is “asking prices in Spain haven’t changed much in 5 years” - leading to the likely conclusion: “asking prices bear no relation to actual transaction prices”. The reason I mention this is that last week, one of the largest property portals in Spain, Fotocasa, reported “Prices rose by 0.6% on average, with the regions of Cataluña, and La Rioja seeing the greatest recovery in price at 4.6% and 4.5%” On the face of it, this seems like very good news and evidence that a partial recovery in house prices may already be underway. However, Fotocasa’s data has the same bias as that of Kyero - asking prices. Again, the only ‘fact’ we can take away from Fotocasa’s announcement is “some vendors are asking more for their property in some areas now”. As I commented about one article last week , just because a vendor raises their asking price, doesn’t mean that anyone is willing to pay it. Turning to government data to gain insight into the property market is equally frustrating. The data from the Ministry of Housing is based on valuations and is highly suspect because it doesn’t describe the market dynamics we have all observed first-hand. The data from the National Institute of Statistics does track actual notarised property transactions - but does not account for the money that continues to pass between buyer and seller “under the table”. So, despite the weaknesses of the TINSA index - and the limitations of my brain to make sense of the rate of change of change in their index, in my opinion it’s the best we’ve got because .. They’re an independent company without an obvious political agenda Their methodology has been consistently applied since 2001 Their data accurately describes what we’ve seen with our own eyes What the TINSA data tells me is that Spanish property may not yet be at the absolute bottom - but it’s not far off. Martin Dell, Kyero.com

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Differentiating Spanish House Price Data

The A Place in the Sun Live show will be on in London at Earl’s Court from 26th to 28th March. Aside from an impressive list of attractions , there are two extra reasons to put the dates in your diary. First, we’ll be offering free tickets to the show - we should have more details about this for you next week. Second, the AIPP have chosen the event to announce the winners of the AIPP 2010 awards. AIPP Chief Executive Paul Owen says: “Awards Nights can often be closed events for industry only and, enjoyable though that can be, we felt that the winning would be even sweeter in front of real, live clients!” The AIPP awards are an independent, non-profit-making initiative to reward customer service excellence in the international property sector. As such, they have a real impact on the quality of service you should expect when buying Spanish property . The winning companies will be announced on Friday, 26th March at A Place in the Sun Live. Check back here next week for more information on how to get your tickets to the show. There’s very little ‘new’ in the news this week that warrants further comment from me. Spain’s economy is still fragile - but not quite as shaky as the economies or Greece or Portugal. Both of those countries have hogged the economic headlines this week. Germany has had its share of press too. The most interesting perspective came from The Telegraph which points out that Germany’s economic strength is driven by exports. Even though their domestic economy is one of the strongest in Europe, the fact that it’s neighbours are buying fewer German products means that Germany’s own recovery may slow to the overall rate of recovery in Europe. Clearly then, weaker countries such as Spain, cannot count on Germany’s spending power to pull them out of recession. Mr Zapatero will need to figure that out all by himself - and the country’s presidency of the EU has prompted a fair amount of comment about Spain needing action rather than words . In other news which didn’t make the newsletter this week: Mark Stucklin comments on TINSA’s latest house price index as inconclusive, and the latest government data as ludicrous. Meanwhile, over at our new Spanish current affairs news site, these articles caught my eye: Spanish Small Business Closures Up 5.1% Spanish Property Rental Price Boost Electric Cars To Be One of Spain’s Greatest Aims Alhambra, Granada - Spain’s Most Visited Attraction 20% of Spain’s GDP In Black Economy Martin Dell, Kyero.com

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Free Tickets to A Place in the Sun Live

The Bank of Spain has found indicators of improved activity in the fourth quarter. They believe that consumption indicators eased their retreat in October and highlights that car registrations stepped up their advance in November. However, the bank still believe that the data about the evolution of the activity is still “limited”, according to its latest economic bulletin. If so, GDP could continue moderating in the fourth quarter and improve the figures recorded between July and September, reflecting a year decrease of 4%. The Bank of Spain believes that consumption indicators eased their retreat in October and highlights that car registrations stepped up their advance in November, boosted by the effects of Plan 2000E. It notes that the most recent indicators of investment are “less negative”, while construction investment figures continue to reflect the process of “severe adjustment”. At the same time, exports moderated their rate of decline, year on year, in October, while the pace of decline in imports continued to “fade” in the tenth month of the year. The bank, governed by Miguel Angel Fernandez Ordonez, also noted “slower decline ‘in tourism at the beginning of the fourth quarter and that, under the Hotel Occupancy Survey (HOS) foreign overnight stays fell by 5.6% in annual terms in November, four points less than in the third quarter. On the supply side, the Bank of Spain notes a slowing of the year decrease of indicators in the fourth quarter. In the case of industry, all indicators show it has slowed its pace of decline, as in services, where the participation rate continued to moderate its descent. It also highlights the moderation of the fall in industrial prices in October, thanks in part to energy prices and to a lesser extent, prices of intermediate goods. Import prices, meanwhile, stressed its rate of decline to -13.8%, while exports eased its fall by nearly two points. Financial Performance On the financial development of the Spanish economy, the Bank of Spain notes that the latest data on the balance sheets of non-financial sectors, corresponding to October, show a “continuity” of the latest trends, because while General government funding continued to grow at” very high” rates the debt of households and companies will move into the new year as “practically nil”. As for international financial markets, the Bank of Spain has shown that their evolution over the last month has been marked by “instability” by the uncertainty generated by the problems of debt repayment in the Dubai fund, though the appearance of favourable macro-economic data and the return of some U.S. aid have helped to support markets. In another article in the Economic Bulletin, the Bank of Spain made an analysis on the impact of R & D in economic activity and concludes that this investment has a positive long term effect on GDP of the Spanish economy, of similar magnitude to that of other developed economies. In contrast, the short and medium term positive impact on GDP seems to be slower in Spain than in other developed countries, which would confirm the presence of “problems of technology transfer” from the research sector to goods producing sectors and final services. It indicates that investment in public R & D seems to generate a drag effect on private R & D, but also generates a certain “expulsion effect” on the latter, due to “bottlenecks” in the research sector as a result of both the public and the private sector competing scarce resources-qualified capital. Thus, bank said that public intervention in the field of innovation can have a positive effect on economies with low levels of expenditure on R & D but, once it exceeds a certain threshold, additional increases in public spending in this matter only substitute for private spending. Story from Barcelona Reporter

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Bank of Spain: Improved Q4 Indicators for Economy

Economic figures released Thursday provided little evidence that the 16 countries that share the euro are enjoying a strong recovery from recession. Eurostat, the EU’s statistics office, confirmed that the eurozone’s economy grew by 0.4 percent in the July-September quarter from the previous three-month period - unrevised from its previous estimate - and that retail sales were flat in October from the previous month. According to Eurostat, Greece and Spain remained the only two eurozone countries in recession. Germany, the currency bloc’s biggest economy, posted quarterly growth of 0.7 percent. The third quarter rise was the first in six quarters and brought to an end Europe’s sharpest recession since World War II. Though the eurozone’s banks were not at the epicenter of the financial crisis that triggered the global economic downturn, the region suffered as demand for its high-value products fell off a cliff. The EU as a whole, which includes non-euro members such as Britain and Sweden, grew by 0.3 percent, just above the previous estimate of 0.2 percent, while retail sales rose 0.3 percent in October from the previous month. In addition to Greece and Spain, Estonia, Cyprus, Hungary, Romania and Britain continued to see output shrink during the quarter. The severity of the recession is evident in the annual comparisons - despite the modest third quarter growth, Eurostat said eurozone output was 4.1 percent lower than the year before while the EU’s GDP was down 4.3 percent. However, both were improvements on the 4.8 percent and 5.0 percent contractions recorded in the second quarter. Despite the modest third quarter improvement, growth is not expected to return to pre-crisis levels for a while yet, meaning the output lost during the recession will take years to be made up. Thursday’s data comes ahead of the latest policy statement from the European Central Bank. Analysts expect a number of significant decisions and announcements from the central bank for the 16 countries that share the euro - even though the benchmark rate will likely stay at the record low of 1 percent for months to come. In particular, they will be looking to see what President Jean-Claude Trichet says in his press conference about liquidity measures introduced to keep the banking system from collapse and to limit the scale of recession. Story from Forbes

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Eurostat: Spanish Economy Still Shrinking

The tie-up of the two Catalan institutions, Caixa Penedes and Caixa Laietana, will create the country’s ninth-largest savings banks by assets. Plus, Unicaja and Cajasur of Andalusia are the latest two banks to merge in the midst of the nation’s worst recession. Two Spanish savings banks, Caixa Penedes and Caixa Laietana, said Wednesday they had agreed to merge, creating the country’s ninth-largest savings bank by assets. The tie-up of the two Catalan institutions will create a savings bank with over EUR 32 billion in assets, over 900 offices and a staff of around 4,000, the two said in a statement. Last week, Bank of Spain governor Miguel Fernandez Ordonez said he would like to see a third of the country’s 45 savings banks quickly absorbed by stronger institutions. He suggested the radical reform in a bid to help the sector which is struggling in the midst of the nation’s worst recession in decades. “I think there are at least 15 institutions that should merge with others. I hope (by) next spring we have restructured all these institutions, that’s my idea. We now have many, many mergers that we are discussing,” he told the Financial Times newspaper. Spanish commercial banks got off relatively lightly from the subprime mortgage crisis in 2008, as the country’s strict rules meant they did not invest heavily in the high-risk loans that caused the economic chaos. But many, especially smaller unlisted saving banks usually controlled by regional politicians, were badly hit by the collapse of the country’s once-booming Spanish property market. Unlike in several other European nations, no bank in Spain has been formally nationalised as a result of the global credit crisis, but in March Madrid placed the regional Caja de Ahorros Castilla La Mancha under special administration. And in June, Spain announced a multi-billion-euro fund to help revive the financial sector by buying stakes in banks hit by the global crisis to get them lending again. Story from Expatica Two more regional Spanish savings banks, Unicaja and Cajasur, said they had agreed to merge as the pace of consolidation in the sector gathers pace due to a recession which has fuelled bad loans. The two banks, based in the southwestern region of Andalusia, reached the deal late on Monday, they said in a statement sent to Spanish stock market regulator CNMV. Unicaja and another savings bank based in Andalusia, Caja de Jaen, agreed in August to merge and by joining force the three banks will give rise to a powerful regional financial institution. Story from Expatica

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Two Bank Mergers in Spain - Many More to Come

The market for new homes is on the road to a mild recovery, claims the G-14 group of Spain’s leading developers. Sales of newly built homes will continue “consolidating in the coming months” said Pedro Pérez, head of the G-14. There is some basis for the developer’s optimism in the latest sales figures from the National Institute of Statistics. Sales of newly built properties increased by 7.6% from August to September, though on an annualised basis sales were down 20%. “It’s been comforting to see sales rise for the 5th consecutive month, something that means we can say that the sector is recovering since it touched bottom in April,” Pérez told the Spanish press. Sales are bouncing back thanks to lower prices and more selective mortgage lending by banks, argue the developers. The recovery in sales will continue in the months ahead, says Pérez, in part because developers will make “every effort possible” to make Spanish property prices more attractive. The latest monthly home sales figures are out for September from the National Institute of Statistics. Transactions are the heartbeat of markets, so it’s always worth a look at the monthly sales figure. What do the latest figures tell us about the state of the Spanish property market? Mainly that there has been no major turnaround in the health of the market, but no lurch downwards either. Homes sale in September, not including social housing, stood at 33,276, up 7.4% on the previous month, but down 19% on the same month last year. Compared to 2 years ago, sales in September were down 42%, which just shows how much the market has shrunk since the boom. The figures show that, though the market is significantly smaller than it was, it is not getting any smaller. It appears to be bumping along a floor of around 30,000 sales per month. Monthly sales have improved on an annualised basis, though they took a bit of a dip in September. Conclusions The market is still depressed in volume terms, but not getting worse. Given the depressed state of sales, the glut of homes on the market is getting bigger. New build sales are holding up the market but may soon start to decline. Given all the above, you would expect prices to have fallen further. Story from Mark Stucklin

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‘Mild’ Recovery of the Spanish Property Market

A mixed bag of cheery items from this week’s news - each affecting the Spanish property market. In a month’s time, A Place in the Sun will be holding an auction for 60 lots of key-ready properties on the Costa Blanca, Costa del Sol and Costa Calida. They will be discounted by up to 50% and in some cases they will have no minimum price at all. The catalogue is a very comprehensive document and contains some great information about how the auction process works together with information about the individual properties. Personally, I believe these type of key-ready properties are likely to be the best Spanish property buys at the moment. If you are serious about buying in Spain, make sure you put the auction in your diary. In the news this week was the proposed consolidation of British Airways and Iberia - Spain’s largest carrier. It’s early days yet, but perhaps their combined forces might increase the number and choice of flights to Spain in the future. More information about the deal from Expatica . Another item caught my eye this week. Hands up who knew that Spain was pioneering the way in Wind-power? Sure, I’ve seen lots of windmills everywhere - particularly in the foothills of Granada - but I had no idea Spain’s capacity for wind-generated-power was quite so impressive. According to this article , over 50% of Spain’s power needs could be supplied by windmills working at their peak capacity. Trailing only the USA and Germany in capacity, Spain seems to have found something it can be world-class at. Remember my strange article of a few weeks ago? Perhaps Spain could divert its labour subsidies away from digging up roads to creating employment related to clean energy production? Just a thought. Back to the Spanish property market, I wrote a quick summary of the latest TINSA report and why it’s heartening for a couple of reasons. Martin Dell, Kyero.com

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Spanish Property Auctions, Flights & Wind Power

No interest rate change from Bank of England, FOMC or the ECB. Sterling shrugs off £25 billion of additional QE measures. UK data had less influence on currency levels during last week, with the main focus on how much the Bank of England (BoE) would expand its existing quantitative easing (QE) programme. Nevertheless, it’s worth looking at some of the numbers. Industrial production came first and provided a pleasant surprise when September’s figure came in at 1.6% month on month, versus the previous month’s -2.5%, and above the 1.2% expectation. However, this was more of a technical correction and flatters to deceive, as factories were closed for summer break and hence, falls short of suggesting a recovery across the industrial sector. The Chartered Institute of Purchasing & Supply (CIPS) services Purchasing Managers’ Index (PMI) also came in strong with a reading of 56.9 (versus the previous 55.3) - its highest level since August 2007. Though construction PMI showed a small drop, the manufacturing number posted an impressive rise to a two-year high at 53.7. Add to this the latest rise in the Halifax house price index and it is no surprise that the market started to scale down its previous expectations of a £50bn addition to the BoE’s QE programme. As expected, UK interest rates were kept at 0.5%. The actual amount of additional QE money to be made available came in at just another £25bn, with an anticipation that the extension would take three months to complete. Sterling actually went up straight after this announcement, as the market was clearly expecting more. EUR / USD traded within an even tighter range of 1.4720 - 1.4900. There was very little important data from the eurozone early in the week, with only an inflation indicator to go on. Better than expected PMI numbers were seen, with those relating to the service sector well above expectations. On Thursday we saw the European Central Bank (ECB) leave interest rates on hold; not that any other outcome was ever on the cards. But it was the press conference that the markets were interested in. The president of the ECB, Jean-Claude Trichet, gave one of his masterly performances - promising much, answering all, but saying very little. The market took the overall tone, however from his comment that “we will be timely but gradual in phasing out measures”. This was largely anticipated, with the disappointment of the risk traders that the stimulus was to be withdrawn tempered by the assertion that it would only be done gradually. So, with no dramatic surprises, the effect on the market was limited. Over in the states, news filtered through that another US bank, CIT, had filed for bankruptcy protection over the weekend. Asian markets did have a few moments of panic as they mistook the acronym for another much larger and already bailed-out bank. The tone for the first part of the week had been set; and despite some upside surprises in data, the week began with soft equities and a stronger USD. We saw an improvement from the US ISM manufacturing release up from 52.6 to 55.7, versus expectations of 53. On Wednesday evening we arrived at ‘central bank time’, with the Federal Open Market Committee (FOMC) announcement. There was no surprise to see rates left unchanged, though there were differing opinions as to where the slightly changed statement left markets. In what really looks like a fairly neutral result, the FOMC “continues to expect economic conditions to warrant exceptionally low rates for an extended period”. Friday’s release of the non-farm payrolls figure saw the announcement of another 190,000 jobs lost - which was slightly worse than expected - and the prior month’s figure was also revised down. The unemployment rate rose to 10.2%; much worse than the 9.9% forecast. This caused a brief bout of risk aversion and subsequent dollar strength, albeit rather muted by usual standards. In the UK, this week is a quiet one data-wise. Early on, we have British Retail Consortium (BRC) retail sales, the Royal Institute of Chartered Surveyors (RICS) house price balance and the UK Trade balance. On Wednesday we will see the long-awaited BoE quarterly inflation report. Stateside we have little data on Monday or Tuesday, which leads into the Veteran’s Day Holiday on Wednesday. This only leaves weekly jobless figures on Thursday and the US Trade balance reading on Friday. From the eurozone, we look forward to the German economic sentiment survey from the ZEW, as well as speeches from Jean Claude Trichet and Axel Weber of the ECB - which could also influence the rate. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Moneycorp: Stalemate for Sterling

Home sales in Spain, not including social housing, fell 9.9% in August compared to the same time last year, according to the latest figures from the National Institute of Statistics (INE). A 10% fall may sound bad, but given the form this year it’s actually rather good. Spain’s leading daily El Pais suggests this another sign that the market if finding a floor, pointing out that this is the smallest year-on-year fall since the INE began publishing this data in January last year. On the other hand, August 2008 was itself a bad month, so maybe the comparison isn’t so flattering. Sales in August 2008 were down 40% on the preceding year, and fell 18% on a monthly basis. Nevertheless, the year-on-year sales trend has been improving since April. That said, on a cumulative basis sales this year to the end of August were still 32% below the same period last year, and 51% down compared to 2007. If you break down sales into new build and resales you notice an alarming deterioration in resales during August, only offset by the steady performance of new build sales. Resales, traditionally the biggest segment of the market, have lagged new build sales almost since Spain’s property market slump began, but looked like recovering in July. We will have to wait a few more months to see if resales ride to the recovery of the market or not. Spanish property prices began to deflate in the second half of 2008 after the global financial crisis paralysed mortgage lending and exposed a market glut of almost a million unsold new homes, equal to stocks recorded in much larger economies. Shrinking economic output, soaring unemployment and family and small business debt of around 200 percent of gross domestic product would mean a continued reevaluation of Spain’s overpriced property market, economists said. A Reuters housing poll of Spanish and foreign-based economists found that on average prices were expected to fall 32 percent from their 2007 peak. The number of houses sold in Spain fell 8.2 percent in August from July, the first monthly drop after three consecutive monthly gains indicated that, while the initial sharp drop had slowed, any market recovery would be weak. “Third quarter figures indicate the drop in Spanish property prices is stabilising, but any talk of a recovery should be viewed with caution,” the department of economic studies for savings bank Caixa Catalunya said. Prices would continue to shrink for at least another four quarters, economists at the savings bank said. Banks showed little sign of loosening their hold on new credit, one economist from M&G Valores said, after Spanish mortgage lending fell 33.9 percent year on year in July. Bargain hunters with capital to back loans would help take the edge off a plummeting market but any recovery would be weak until banks again started to lend more widely, the M&G Valores economist said. Story from Mark Stucklin and Forexyard

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August 2009: Bottom of the Spanish Property Market?

The number of houses sold in Spain fell 8.2 percent in August from a month earlier, the first decline after rising for three months in a row on a monthly basis, official data showed on Tuesday. Sales were down 9.9 percent in August from a year earlier, the 20th consecutive month of shrinking sales, the National Statistics Institute said. The fall in August sales to 34,019 homes compared with a year-on-year decline of 20.3 percent in July, and a record 47.6 percent drop in April. Residential Spanish property prices fell by 8.3% over 12 months to the end of September, according to the latest Spanish property price index published by Tinsa, one of Spain’s leading appraisal companies. Nationally, prices are not falling as fast as they were, which may mean the market has touched bottom. It certainly looks that way from the TINSA graph. Then again, this might just be a temporary pause before prices start accelerating downwards again. After all, that’s what has happened to property prices on the coast. After stabilising in July and August they lurched lower again in September, falling 11.5% over 12 months, the highest fall of all the regions analysed by Tinsa. Story from Forbes and Mark Stucklin and TINSA

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Spanish Property Prices Decline but Levelling Out?