The situation of the Spanish economy is now far from the effervescence of a new debt speculative bubble. The cost of housing is not accompanied by an increase in credit. Private indebtedness does not rise and the balance abroad is positive. Spain is very far from those times when it was borrowed from abroad about 100,000 million euros a year, mainly for the purchase of housing at skyrocketing prices. However, the value of real estate worries. First, because as soon as prices rebound strongly, the owner thinks he is richer and stops saving. At present, the savings rate is at historical lows after having reached maximum levels during the worst of the crisis.
As these bullish scenarios take hold, there is a danger that revaluation could lead to excessive confidence in the value of the brick and, therefore, to a spiral of relaxation in the granting of credit and in the criteria for building. "You should never underestimate the speed with which these processes take momentum," says a senior administration official.
Hence, the International Monetary Fund carries out in its annual report on Spain an analysis on the national real estate sector. Under the title of The evolution of the housing market, a reason for concern?, the economists of the organism elaborate two different estimations to try to measure deviations of the prices.
In one of them, the Fund makes calculations that include the trajectory of per capita income, of the population of working age, of interest rates, of the Stock Exchange, of the costs of construction or of the relationship between the price of housing and household income. In short, it tries to measure if the property is affordable and if its value is consistent with the progress of the economy. With this model, the IMF maintains that there is a "slight overvaluation in the fourth quarter of 2017". However, he also points out that these results should be taken with caution given the complexities of the calculations.
As in 2003
The other comparison is based on historical averages and examines, on the one hand, the relationship between housing prices and family income and, on the other hand, the cost of housing in relation to rent. In light of these variables, the Fund concludes that at the end of 2017 these ratios are "approximately at the same levels as in mid-2003" and slightly below their historical average. Consequently, "it indicates that there is no overvaluation". However, the only notice from the Bank of Spain warning of an overvaluation in the housing market was made in 2003, with Governor Jaime Caruana in front. However, never again was alerted and at no time were measures taken with enough stem to correct it.
Given the precedents, it does not matter that the debt is still decreasing in proportion to GDP. The Fund defends that it is time to start preventing and preparing tools with which to avoid an accumulation of imbalances. "Although the deviations in the valuations of the houses are not for now significant and the financial situation of the homes has improved since 2012, the persistent pressures on the demand in the real estate market could raise the risks for the financial stability", he warns.
In his opinion, banks are still "highly exposed to the real estate sector" and, therefore, the macroprudential tools, those that allow control of financial risks, should be expanded to embridar this exposure.
That is, Spanish supervisors should acquire new powers to limit the granting of mortgages, depending on the value of the home, the borrower's income or the credit terms. In fact, the Government of Pedro Sánchez is preparing a decree to endow the Bank of Spain with these capacities.
"The urgency to improve macroprudential instruments has increased. (…) It is critical that the Bank of Spain has a complete set of tools to be able to act quickly if a de-correlation in prices emerges, "he says. The Fund requests mechanisms to ensure that information is shared among supervisors and that their actions are coordinated. And he positively appreciates that Spain is already organizing an authority to monitor bubble formation, which is in charge of these tasks in principle.
The IMF itself emphasizes, however, that the financial cycle still does not show signs of a debt bubble. On one side, Private indebtedness has continued to decline. Only in 2017 fell 10%, highlights. And the balance with the outside, the true thermometer of whether or not economic imbalances are generated, is positive, although in recent months it has deteriorated rapidly. On the other hand, some experts recall that there is less funding for the securitizations that led to the excessive growth of mortgages. As the Fund points out, the vulnerabilities are rather concentrated in the high accumulation of public and external debt.
No brick boom
In addition, the IMF emphasizes that this time the recovery of real estate prices is not linked to a bonanza in construction, which was what really channeled the unbridled debt, especially with the exterior. Brick activity still represents half of what it was before the crisis in GDP, he says. And most of the purchases are in the used house, not in new work. Although prices are alarming in some cities, they are very focused increases in municipalities and areas where demand is very concentrated: "Between 2014 and 2017 prices have increased by 15%, driven by the rapid recovery of cities like Madrid and Barcelona ", says the report.
Among the recommendations made by the Fund, urges that there be a cleaning of the balance sheets of construction companies, in some cases still damaged by the crisis and with high delinquency rates. Encourages encouraging the hiring of fixed rate mortgages to protect the indebted from future increases in interest rates. It asks to ensure that the criteria for access to social housing and rental subsidies are well used. And he believes that it is necessary to improve the regulation of urban developments to break with the restrictions that exist in the offer. After what the Government of Sanchez has announced measures to tame the escalation of rents, the Fund criticizes them: "Any new initiative designed to reduce pressures on rental prices should avoid causing negative effects on the offer, which would have an adverse impact on low-income tenants."
The IMF has been demanding for years for Spain to form a systemic risk authority, that is, an agency that deals with monitoring financial risks to avoid the formation of imbalances and, ultimately, bubbles. The Fund sees a first indication of slight warming in the housing market. That is not a bubble. But it is a first signal that must be monitored and why it is necessary to orchestrate that authority as soon as possible. The previous PP government delayed its constitution. Minister Guindos was reluctant to give more powers to the Bank of Spain. But now, with Calviño at the forefront, Economía has already completed its design. The idea is for a committee to group together the Bank of Spain, the CNMV and the Ministry of Economy, with the capacity to issue reports, alerts and recommendations. In addition, the Bank of Spain will obtain powers that it previously did not have to stop the granting of credit by sectors. You can even limit the conditions under which mortgages are lent.
With this report, a decade after the start of the crisis, the IMF presses for this authority to be finally put in place and even puts its first duties on it. In Europe only Italy has not created something in this line. It is also about a European recommendation since 2013.