Mr Zapatero Said What……….?

Spain’s Tinsa Price Index was out last week, and showed Spanish property prices fell again in September, and at an accelerating rate. As Tinsa point out in their report, both “Metropolitan Areas and municipalities on the Mediterranean Coast,” whose rates experienced a significant drop from the previous month, have contributed decisively to this steep decline”.

In fact, looking at the chart the other way round, prices have now fallen some 18% from their December 2007 peak.

The strange thing is that the latest Tinsa data contrast sharply with the most recent finding of Spain’s National Institute of Statistics (INE) on the subject, since they suggest in their latest report that Spanish property prices actually rose in the second quarter (quarter-on-quarter) (and for the first time in the best part of 3 years), but this finding rather than reassure us that all is well (and as it should be) only serves to cast further doubt on the ability of the INE to maintain adequate statistics on the state of the Spanish economy, or at least to interpret the data they collect. This latest piece of statistical wizzardry lead Spanish property expert (and author of Spain Property Insight blog) Mark Stucklin to say “If you believe that, you’ll believe anything”. Frankly, I’m inclined to agree with him.

Of course, it has become rather fashionable to question INE data interpretation of late (and I personally have had my problems with the seasonally adjusted employment numbers – in fact see these collected screenshots of the the backward revisions that were going on in the data as evidenced by Eurostat monthly reports) but this latest “faux pas” does make you want to ask “can’t they get anything right”? In fact the Statistics Office house-price-data, is full of incredible and eye catching details, like the suggestion that new build sale prices only peaked in the third quarter of 2008, following which they only fell back 7.77% from peak, before taking off again, if we are to accept the official data version of things. So this must have been the “bottom” that Mr Zapatero refered to in his CNBC interview (see below). And this, as Mark Stucklin notes “despite a glut of up to 1 million newly-built homes, and discounts of up to 20pc or more on any developer’s price list you care to look at”. So is this how one of the greatest housing busts in living history ends, with a whimper and not a bang? Somehow I doubt it.

Naturally, I’m sure its a pure coincidence that this latest “surprise price reversal” data came out just before Jose Luis Rodriguez Zapatero went to New York to kindly inform all concerned that the Spanish property market is now on the mend. In an interview with CNBC (see this official Moncloa transcription of the interview if you have any doubt), Prime Minister Zapatero repeated the INE claim, stating that house prices are beginning to rise in some areas, though not, he admitted, in the case of holiday homes. “In fact, in the last 2 to 3 months, we have seen that prices are not only not falling, but even rising in certain parts of Spain, where people buy their first home,” he told CNBC’s Maria Bartiromo. This, he argued, shows that “demand appears to be on the rise.”

MS. BARTIROMO: Are you expecting real-estate prices to continue coming down? Have they hit the bottom or not yet?

PRIME MIN. ZAPATERO: I think that the price of housing has hit the bottom. It won’t go down any more. For the past two or three months, what we see is that not only has it not dropped. But in certain parts of Spain, the price of housing has gone up. This is especially the case in those areas of — not where people are buying their second house, if you like, with the prices there have still gone down a bit, but rather where they’re buying their first, there the prices have gone down in the housing sector. So in general the prices have been stable recently, and they’ve even been increasing. So demand seems to be ticking up again.

Now, as that posse of irate INE defence vigilantes who may come chasing after me on this will no doubt tell you, the methodology they use is different from the Tinsa one, since it based on registered Notarial transaction prices, while the Tinsa index is based on asking prices, but come on, house prices rising again in Spain? Which world are we living in?

Of course, there could be another explanation for this seeming discrepancy (apart from fudging the numbers that is) and that would be that many of the actually new build transactions are not real transactions at all, but rather paperwork ones, as the banks move over the developers unsold property onto the books of their special purpose subsidiaries, and don’t mark down the price since they prefer not to show losses. Then, of course, the very same subsidiary offers the property for sale at a sizeable discount (and it shows up with the Tinsa index as an asking price), but since there are very few real new-build sales at the moment, these number never show up back in the notaries office, where all is quiet and orderly.

Sure, the data show that new house sales “seem” to have bottomed, and even picked up a bit (see chart below), but talking to developers and estate agents out on the street, this doesn’t seem to be the result of any real pick up in end user demand. It is more a question of banks responding to pressures from the Bank of Spain by moving their properties “out of sight” (if not out of mind). Meanwhile, the typical Spanish buyer is adopting a watch-and-wait approach, and will need a lot of convincing that they really have stopped falling before they move back in. Even the “experts” employed by the EU Commission are not convinced either, since they just published a report stating that Spanish property prices were still 17% too high.


But if you want one, there is something more like a smokin gun out there which should tell us that this whole Spain property market recovery story is a bit strange, and that is the Bank of Spain data for total mortgage lending. This has hardly moved since the start of 2009 (see chart below) so it is far more easily reconcilable with the properties being transfered over to bank subsidiaries (complete with their “developer” mortgages) story, than it is with one of rising sales and rising prices.

More than the house price story itself, which is hardly pleasing to the eyes, what I find most worrying is the way the Spanish administration seems to be boxing itself into a corner with its use of data. During the interview. Mr Zapatero also said the following in a response to a question about the outlook for the Spanish economy: “Well, our estimate is that we won’t have any more quarters where growth will go down. We think that growth will continue to improve, and this will also improve confidence in the Spanish economy”. But none other than Bank of Spain Governor Miguel Angel Fernandez Ordoñez recently asserted that the Spanish economy had visibly weakened in the third quarter, and the data we have certainly seem to back him up. And the fourth quarter outlook looks even worse. So which is it, will Mr Zapatero be able to eat humble pie, or will an army of bank analysts and hedge fund investors end up spending the whole xmas period going through all the Spanish data with a fine toothcomb? Mr Zapatero also says: “What’s happening is that our plans are being fulfilled to the letter”. This reminds me of other statements from other national leaders in other times. Would that those beyond the confines of his own small closed inner circle could find themselves able to agree with him when he makes such an assertion!

This entry was posted in A Fistful Of Euros, Economics: Country briefings, Economics: Currencies by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

15 thoughts on “Mr Zapatero Said What……….?

  1. This looks like the little brother of USA, literally.

    Let’s wait to the hard data of the cousin U.K. next month…

    We’ll see a hard race to the bottom, but with lots of colours.

    -:)

    Keep on the drum on and make noise, but zombies won’t go away…

  2. some idea…

    1- In a thin market where buyer and seller are confused and transactions are running low – so none of those group are understanding what is currently happening…volume fall and price fluctuate erratically – what do you expect after price have been rising for two decades in a linear fashion buoyed by central bankers experimenting low interest across the board and dreaming of a single currency – I think Trichet should be nicknamed Don Quixotte…

    2- In some country, not sure about Spain, pension fund (or other state made structure) are currently fixing the price since evolving in a thin market – becoming the buyer of last resort and of course delaying, not stopping, the adjustment – so it won’t go linearly down but some bumps will appear… however at some point the fall could be fast, sharp and nasty (maybe this structure will be shorting those market one way or another …)

  3. Of course prices are not rising with over 1 million unsold properties this is unlikely to be the case for a few years to come.

    Banks still ask high prices for their owned stock and use special mortgage deals like 100% ltv to get the residents to buy while cash deposits are not required. In reality this just means the buyer pays over the market price when in fact they do buy.

    Because neither the banks or developers have yet wised up or admitted to where the market price really is selling prices may look good but they are selling nothing in volume.

    I have been in Spain since 2002 arranging loans and this year for the first year ever I have regular enquiries from people buying property at less than € 100k. This suggest the real market is well below 2002 prices.

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  7. How can anybody be surprised at the reality that government officials use official statistics as a reference? Well, Edward is. What next? Are you going to dismiss, Eurostat, the ONS, the FBS, the World Bank or the IMF? Then again, Edward says that Mark Something is a “lead expert in Spanish Properties”. Talk about the contemporary man and a dog. This Mark Something is a man a blog. This fellow has a degree in spanish from a shithole university and works as a freelance translator in some god forgotten village in the Costas. There you go, that is the kind of reference that a president should follow to get Edward’s approval.
    To understand how far from reality Edward is I heard a conversation he recorded with his friend Marc Something in 2004, after Zapatero won his first term. In it Edward says that he is “surprised about the spanish decision to withdrawal its troops from Iraq”, he had not ‘anticipated’ it. Come on Edward, you should have read the electoral manifesto, you should have listen to the speeches in parliament, you should have heard it on television a thousand times. Zapatero promised that would be the first thing he would do once he reached power. See, Edward, all those are things from reality that you should pay attention to, just like official statistics.

    http://fistfulofeuros.net/afoe/spains-withdrawal-from-iraq/

  8. As someone who analysed the Spanish property market professionally off and on for 15 years, my only surprise is that anyone takes the TINSA numbers seriously at all.

    Spain has one of the most opaque property markets imaginable in terms of price transparency. I remember in the early 1990s talking to two guys who had just been put in charge of major banks newly formed property holding company, who said that they did not know what ‘real’ prices were actually being paid on transactions being ‘reported’ to them by their own bank managers! Similarly, a good friend who had been MD of a what was at the time a publicly quoted company told me they had found all of the transactions they had valued the company on before buying it subsequently turned out all largely falsified.

    Another friend more recently told me he got rung up by the ‘auctioneer’ for a major bank offering him a 24 hour ‘take it or leave it’ deal. When was the auction to take place, he asked. Auction? There wasn’t going to be one, stupid. I understand, the net result is that Spain is now going through a ‘second round’ of repossessions, ie. property repossessed and sold being repossessed again, because the banks weren’t too anxious to check creditworthiness of the buyers.

    17% too high? Give me a break 7 zero more like it.

    But there is no right answer to valuation. It is all a confidence trick. Think about the tulip bubble. After it collapses, you get two experts in to value your collection. One says look they are just bulbs, reckon them to be worth no more than onions. Another goes through your whole collection valuing them individually based on what people have been paying for them over the last 3-5 years. The first might be right, but you are going to think the second guy the more credible ‘expert’. You just hope that enough people believe the second guy too, and are prepared to buy your tulips at these prices.

    At the moment no one is buying so no-one really knows. There is basically no way that the ‘bricks and mortar’ of all that unsold housing stock should be worth anything close to ‘valuations’ being put on them. It is just a question of whether you can convince people that your tulip is a rare tulip, or just an ordinary bulb.

  9. Sorry “professional” mate, at the moment there were 500.000 property sale transactions officially registered in the last 12 months in Spain. All of them with a number written in the ‘purchase price’ box. And those numbers being crunched in on the official and independent statistics. Not ‘a friend told me’ but a record of reality. 500.000 is a very large ‘nobody’. Think of it as King-Kong foot stepping on your argument of tulips and bulbs.

  10. The practice of mis-stating the value of a property transaction in officially recorded property statistics in Spain has a long history and has always been extremely wide spread. If you don’t believe me ask just about any Spanish property lawyer. Very few property professionals that I used to deal with trusted these statistics.

    I don’t know if there are any tricks going into these statistics, but changes in methodology etc. can mess many statistics even big ones (try looking at the site ‘Shadow Statistics’ to see how US, a much bigger number than this can look very different if you just apply different methodologies – in the case of that site actually the ‘old’ pre-Clinton ‘official’ methodology). It would be unfair of me to make this claim about current Spanish stats, because I don’t know, but just because a number is large or ‘official’ I don’t automatically trust it.

    I think you make a fair point about 500,000 not being ‘nobody’, but it is not a ‘King Kong’. Spain has a population close to 40 million 500,000 is just a tad over 1% buying a house in a year. Similar in fact to the UK at the moment with 615,685 last year for a 60 million population (down from a peak of 1.3m) and I think everyone would recognise current levels to be a ‘thin market’. In Spain it is true especially as it includes sales from developers to banks/other developers etc. and foreclosures etc.. I would be very interested to know how many involve a bank as buyer/seller as well as lender which is quite a different sort of transaction to private buyer to seller.

    I base my tulip bulb point on the fact that the Spanish banks were at one stage lending at an AVERAGE of 7 times income – that is just not a sustainable level, but for as long as they do lend at that rate people can still pay these sorts of prices-for now. But it can’t last. Spaniards (like Brits and the Irish) failed to work out that to get and keep low interest rates you need to get and maintain low inflation. But low inflation means low house price inflation too, and with low inflation you can’t pay off the debt on 7x income! Germany for years had low rates, but German banks didn’t lend at those sorts of income multiples. If inflation takes off eventually interest rates have to go up and you can’t service the debt on 7x income if for example you end up with 10% plus interest rates.

    My view is that at some time this has to give somewhere along the chain, but obviously politicians, bankers and central bankers are working overtime to try to hold this together-and gives a fair idea that if we had a ‘market price’ without this assistance it would be lower.

    The other reason I think this is a tulip bulb is the massive scale of building. To put the orgy of Spanish development in some sort of perspective, the UK with a pop of 60m has never built more than some 250,000 new home starts a year, in Spain it peaked at ONE MILLION in a single year, many still unsold. And by the way you can’t compare the 500,000 with the million and conclude it is only 2 years supply, because the 500,000 includes ‘second hand’ not new home sales, and with so many of the new homes in tourist areas rather than the cities where Spaniards live the might never be sold. We are talking about an overhang which could take years and years to clear. Many are already deteriorating and turning back into ‘bricks and mortar’, ‘onions’ not tulips if you like and as lots never got planning approval before being build don’t even have clear title to the land.

    So we had prices more than doubled and were rising when supply increased faster than demand, now demand has collapsed there is several years of oversupply and prices are down ….6%…really?

    So overall, fair point on the number of transactions, but given the size of the supply overhang of new builds on this market I think the game has not played out on whether this is a ‘tulip bubble’ or not yet.

    I think a bounce in prices at the moment is believable but I also think the basic point made by Hugh that figures showing just 6-8% dip from peak to trough just not consistent with this situation and needs some explanation.

    Anyway, must dash Zimbabwe has just released some figures I have to look at. Some people say they are unreliable, but I don’t just go on what some ‘bloke’ says when I have official statistics…

  11. Thanks Peter,

    Is true that 500.000 transactions is half a peak market. Have you heard of an international crisis? Check around, that might have some influence. Having that level is not just a thing of Spain, Britain and Ireland, it is also happening in France, Germany and almost anywhere you might look at. On the other side, the supply has also shrunk, for the first time in ten years there are more transactions of new properties than new developments being started so maybe that level is not so low but about right. Let me use some anecdotical evidence just as you do: my parents, my grand parents, all of my uncles have lived in the same houses and flats since I know of them. In my parent’s block of flats I know all the neighbors and their children since I was a kid. There is more mobility in younger generations, true, but 500.000 transactions is about the mean turn around (25 – 35 years) in a 15.000.000 properties market as Spain. We can live with this level and call it normal for many years. The boom years had many reasons behind their figures, the main one being that Spain received 6 million immigrants in the last ten years. And, hey, those people needed housing. This time on the demand side, we do not have that level of immigration anymore, so that also helps explain the market volume.
    I must say to our readers that some of the data you provide is more unreliable than statistics from Zimbabwe. That thing of 7 times income being the AVERAGE loan is complete bollocks. You cannot provide any documentation to back it. As a matter of fact spanish banks have one of the lowest loan to price ratios in their books in europe. Yes, there has been some 100% loans for first time buyers, but on average banks hold portfolios with ratios below 50%. You see, if you want to look for busted banks and and risky malpractices you are going to have to look somewhere else. Spanish banks have consistently remain in profit these years, they have not needed massive bail outs nor state interventions; they had to follow local regulations that are now being copied in europe regarding not having off balance accounts, regarding maintaining high levels of reserves and provisions. Regarding what you say about inflation and interest rates, the bulk of those loans was given when ECB interest rates where around 3%-4%-5% and now they are at 1%. So there is still some lea-way just to be ‘as bad as’ in the best years ever. The promise of high inflation has been in the mouth of doom sayers for over 24 months and it just does not arrive, meanwhile loans are being paid and debt (private debt) is being reduced. There is also this thing you say that banks should mark to market their loans. This is absolutely crazy. Spanish housing market prices have been growing for 15 years, if banks had not kept their portfolio at purchase price it would have ballooned like mad and the loan to value ratio would have bottomed to below 20%. If they do mark to market right now, what would happen to the price of those properties that they hold at the prices from 15-10-5 years ago? They would again explode upwards. Spanish regulations do not allow for that and only take into account the REAL price that someone REAL did ACTUALLY, in reality, pay with REAL money from their REAL pockets, not a theoretical market value which exists in the mouths but not in the hands of no one. If there is no transaction there is no price, it does not matter what the market say is the price; only real transactions mark prices.
    Lastly this thing you say about registry figures being untrue is simply false. It just does not cut the Occam knife. It serves no one to state wrong figures in public documents, if the figure is lower or higher than the real one, either the buyer or the seller lose out. If the document states higher figures than reality the seller will have to pay more taxes and the buyer won’t be able to explain where did he get the money from, if it states lower figures similar but opposite problems arise. Statistics have a purpose for information, if the information is unreliable there is simply no point on continuing wasting time and effort. On the other side saying that statistics are unreliable is typical from those that continually get reality wrong. This explanation does cut with the Occam knife: as you are wrong it is very easy to say that the document that slaps your argument is wrong. Hugh is wrong and his predictions have been bitch slapped by reality. Again.
    Anyway, must go. Some of my pupils assure me that the marking of their papers is wrong, funnily enough it only happens to some in the group that has been failed, not to those that passed with ‘flying colours’.

  12. Hi Jeronimo,

    To be honest, I did not think my comment on the veracity on this set of official stats would be so contentious when I made this comment. As it is a week night I am limited on how much I can write. But your full comment deserves some sort of reply. My apologies if it is briefer than your answer.

    Your point (J): Is true that 500.000 transactions is half a peak market. Have you heard of an international crisis? Check around, that might have some influence. Having that level is not just a thing of Spain, Britain and Ireland, it is also happening in France, Germany and almost anywhere you might look at.

    My answer (P): In the UK our two political parties beat each other up about this. Gordon Brown (and Labour) say everything was fine until the crisis, David Cameron & Conservatives say the lack of control over lending (government and private) is actually the cause of the crisis. I personally, think it is quite clear that a massive property bubble is at least an important CAUSE NOT EFFECT of the global crisis. People will disagree everywhere on this point-but headlong increases in borrowing, low saving and asset price bubble after bubble does not seem like a well balanced economy to me.

    J: On the other side, the supply has also shrunk, for the first time in ten years there are more transactions of new properties than new developments being started so maybe that level is not so low but about right.

    P: It’s the sheer size of the overhang in Spain which scares me. Going into the downturn of the early 90s, there were around 350,000 homes per year being built (this is from memory-forgive me I don’t have time to look it up) at the peak, so when demand collapsed there was an overhang of a couple of hundred thousand which took 3-4 years to clear. In this cycle housing starts hit 500,000 homes early this decade and just kept going up and up. Spain (I understand) has 1 million unsold homes – this is just massive.

    J: Let me use some anecdotal evidence just as you do: my parents, my grand parents, all of my uncles have lived in the same houses and flats since I know of them. In my parent’s block of flats I know all the neighbors and their children since I was a kid. There is more mobility in younger generations, true, but 500.000 transactions is about the mean turn around (25 – 35 years) in a 15.000.000 properties market as Spain. We can live with this level and call it normal for many years.

    P: What is culturally ‘normal’ varies a lot over time and in different countries. In the UK it used to be ‘normal’ to buy a house in your early 20s-and buy and sell a couple of times to move up ‘the ladder’, although no longer as they are too expensive. Hey, I love Spanish ‘barrios’ and hate anonymous Anglo-Saxon suburbs, but with so many empty houses shouldn’t they be being used! In the UK and Spain we have lots of young people that cannot afford to buy houses, in the UK we should be building more houses for them – but in Spain you don’t have to. In the UK people (younger ones at least) are finally starting to say it can be a GOOD thing that house prices go DOWN, just like it is a good thing that more efficient manufacturing delivers cheaper cars, TVs etc., etc., and most economic thinkers have agreed with them-even if most property owners don’t!

    J: The boom years had many reasons behind their figures, the main one being that Spain received 6 million immigrants in the last ten years. And, hey, those people needed housing. This time on the demand side, we do not have that level of immigration anymore, so that also helps explain the market volume.

    P: If you are really being thorough you need to segment the Spanish residential market a bit more than this to understand the dynamics. The market for ‘housing’ in the tourist provinces is very different to in the big cities, and this includes holiday flats/ houses for Spaniards as well as non-Spanish as different segments. Among ‘immigrants’ there is a big difference between ‘retirees’ and immigrant workers – the later much more rarely buy houses. It’s a bigger issue than can be discussed here.

    J: I must say to our readers that some of the data you provide is more unreliable than statistics from Zimbabwe. That thing of 7 times income being the AVERAGE loan is complete bollocks. You cannot provide any documentation to back it. As a matter of fact spanish banks have one of the lowest loan to price ratios in their books in europe. Yes, there has been some 100% loans for first time buyers, but on average banks hold portfolios with ratios below 50%.

    P: I’m sorry I did not source my data, I did not have it to hand and was making a blog comment not writing an academic article. You misunderstood my point. I said “the Spanish banks were at one stage lending at an AVERAGE of 7 times income” that is new loans NOT stock. I cannot remember the exact source but it was something I checked out extensively when I found it out, including going to a bank and enquiring about a loan myself! If you keep making 100% mortgages the ratio declines on the stock. If I get the chance I’ll look in my files and see if I have the source, but with my current workload don’t hold your breath.

    J: You see, if you want to look for busted banks and and risky malpractices you are going to have to look somewhere else. Spanish banks have consistently remain in profit these years, they have not needed massive bail outs nor state interventions; they had to follow local regulations that are now being copied in europe regarding not having off balance accounts, regarding maintaining high levels of reserves and provisions.

    P: I have spent a great deal of my career telling people that the Spanish banks generally are well managed-and especially in comparison many abysmally managed UK banks, and so it gives me great satisfaction to see Santander gradually taking over the UK banking system! Not that this was always the case, especially Spain in the 70s. The Bank of Spain has clearly been a much superior regulator than awful FSA/Bank of England. In my view, though they have a blind spot on property which has often been their ‘Achilles heel’, and the Banco de Espana is not as tough as it used to be.

    J: Regarding what you say about inflation and interest rates, the bulk of those loans was given when ECB interest rates where around 3%-4%-5% and now they are at 1%. So there is still some lea-way just to be ‘as bad as’ in the best years ever.

    P: For half my adult life double digit interest rates were common in the UK and Spain-when public finances were in better shape than now .Let’s hope they don’t come back, but if they do this in not really much leeway – and, say, 7-8% would be pretty damaging too. The problem is in the upturn when the yield curve shifts.

    J: The promise of high inflation has been in the mouth of doom sayers for over 24 months and it just does not arrive,

    P: Been watching commodity price over the last month or so? We have just been through a downturn with oil scarcely below $70/barrel, watch these prices when we get an upturn, and if Bernanke/Congress ever succeeded in get the Chinese to revalue, god help us, because declining manufactured goods prices are the only thing that has held inflation down in the West for the last 10 years.

    J: meanwhile loans are being paid and debt (private debt) is being reduced.

    P: Yes, to the Spanish banks credit, they did not indulge in interest only loans which messed up the UK banks.

    J: There is also this thing you say that banks should mark to market their loans.

    P: Sorry I didn’t say that. I don’t agree with marking to market at all. This was a huge weakness of Basel II.

    J: This is absolutely crazy. Spanish housing market prices have been growing for 15 years, if banks had not kept their portfolio at purchase price it would have ballooned like mad and the loan to value ratio would have bottomed to below 20%. If they do mark to market right now, what would happen to the price of those properties that they hold at the prices from 15-10-5 years ago? They would again explode upwards. Spanish regulations do not allow for that and only take into account the REAL price that someone REAL did ACTUALLY, in reality, pay with REAL money from their REAL pockets, not a theoretical market value which exists in the mouths but not in the hands of no one. If there is no transaction there is no price, it does not matter what the market say is the price; only real transactions mark prices.

    P: But I didn’t say they should be marked to market. But what is NOT a real transaction, is when, say, a bank-owned property company –including a company with zero equity and lots of debt which is the same thing-sells property to a bank, or a bank sells to a subsidiary it owns, or a bank sells to a company/individual when it has just lent 100% of the purchase price. All this sort of stuff needs to come out of the 500,000 transactions to get ‘clean’ market figures. There is also the other measurement of a ‘real’ price – its cost – materials & labour ex. Land – because land prices are a function (largely) of property prices. Looking at the multiples of cost of building to house price is a useful objective reference to see if property/land is being realistically priced. Finally try a simple comparison of international prices, not on the other side of the world, but just across the border – it is a while since I checked but a comparison of property prices in Biarittz and the Basque country was very enlightening.

    J: Lastly this thing you say about registry figures being untrue is simply false. It just does not cut the Occam knife. It serves no one to state wrong figures in public documents, if the figure is lower or higher than the real one, either the buyer or the seller lose out. If the document states higher figures than reality the seller will have to pay more taxes and the buyer won’t be able to explain where did he get the money from, if it states lower figures similar but opposite problems arise.

    P: Sorry. Tax regulations on property have been tightened up a lot in the last 10 years, but in the 1980s and 1990s property was THE area to hide black money-and as you say there is an average 25-30 year mean turn. Then there is foreign money, especially non-EU-as your logic only holds good when both buyers and sellers are in the EU. There are regional differences too. It is not this simple.

    J: Statistics have a purpose for information, if the information is unreliable there is simply no point on continuing wasting time and effort.

    P: Oh I don’t know, people regularly waste lots of time and lots of effort-I am a big culprit myself.

    J: On the other side saying that statistics are unreliable is typical from those that continually get reality wrong. This explanation does cut with the Occam knife: as you are wrong it is very easy to say that the document that slaps your argument is wrong. Hugh is wrong and his predictions have been bitch slapped by reality. Again.
    Anyway, must go. Some of my pupils assure me that the marking of their papers is wrong, funnily enough it only happens to some in the group that has been failed, not to those that passed with ‘flying colours’.

    P: We might disagree on a lot, but obviously not on human nature, at least! Good luck with the marking.

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