Home Ownership Economics 101

One of the curiosities of social life among the educated classes in Spain is the widespread adoration of titles. We're speaking here of the professional, not noble, sort. Topping off the hierarchy of such things are the abogados del estado - lawyers for the state - followed by notaries, property registrars, surgeons, engineers and architects among others, whose introduction to one will always include their qualifications. It's sort of like living in some wierd parody of one of those British period pieces so lavishly produced by Boston PBS where everything is just so and perfectly in its place - except for that nuisance murder that is at the heart of the action.

One can add university professor to this list, as long as one is willing to differentiate between its two categories. The standard, run-of-the-mill prof and the catedrático. The former is a person with a doctorate in his field, but the other comes equipped with the earned right to decide the fate of future Ph.D candidates. This is a fish of a superior scale, and there is one who is regularly quoted on economic stuff in the nation's press. Introduced as catedrático de economía de la Universidad Pompeu Fabra, José García-Montalvo'regularly, despite his honours, provides misinformation concerning the equivalencies between the Spanish and U.S. housing markets to his readers (and presumably his students).

From idealista.com (translation ours):

In the U.S. the gdp per capita adjusted for the ability to purchase* is 35,000 euros, while in Spain it is 25,800 euros, 27% less. Nevertheless, the median price of homes is almost equal in both countries.

Although in the different context of why banks, builders and homeowners don't feel compelled to dump stock on the market at any price in Spain, we've dealt with all this before (here and here), so we'll merely throw up a screenshot from a Chicago real estate site (this will disappear when the place gets sold) with a bit of explanation for readers whose native language might be Spanish. In the table below the photo:

Taxes means impuestos - the IBI;

Association Fees means gastos de comunidad;

To derive square metres from square feet, divide by 10.

Numbers, of course are universal. The first costs, in the case of this property, 748 dollars a year. The second, 713 dollars per month! On the basis that the comunidad for an equivalent place in Madrid is going to run about 120 euros and the taxes, say 150, we'll do some calculations.

First, we'll assume (to avoid issues of opportunity cost on different sized down payments) that the purchase of the 265,000 dollar Chicago condo is made via a 100 percent loan. At 3.5% interest over 30 years, the mortage comes out to 1,190 dollars a month. Add 64 for taxes and 713 for fees and the place costs a buyer 1,967 dollars a month before he or she ever sets foot in it.

Now we'll try it in Madrid. 13 euros a month for taxes and 120 in fees leaves us 1,834 to pay the same mortgage on a home worth a bit over 405,000 euros.

The lesson here? Multiply U.S. home prices by about one-and-a-half to arrive at actual equivalent ownership costs - then get back to us.

*Isn't he discounting purchasing power from income twice here? Sure looks like it.

----------------------------

Ibex Salad regularly updated features...

• Eurozone Yields & Spreads
• Pending & Recent Spain Bond Issues
• Extra Lettuce - Spain Economic Charts