The Pursuit of Knowledge

We had originally intended to write a simple post on today's release of the quarterly INE house price index for Spain. It has, however, turned itself partly into an exercise in how difficult it is to actually know anything with any certainty - this despite the assurances against ambiguity that numbers might be thought to provide. On the left we've posted a graph showing the IPV, new home and used home indexes provided by the above, as well as the Tinsa proxy and the version emanating from the Ministry of Housing. The latter two have been normalized to adapt to the date range of the INE numbers.

What cannot be known with any sureness is the trajectory of new home prices from the beginning of the chart to some point in 2009 - at least as they are compiled by the INE. Their new home price index is just plain misleading, and we can't help but feel pity for those that bought on the basis of this evidence thinking that the market continued to run away from them. As readers can see for themselves, the value reaches maxima a year to 18 months later than any of the other measures. This is the residual effect of off-plan purchases being delivered. Given the lag between leaving the down payment and taking delivery of one's new place, the index ends up showing us prices that are about two and a half or three years out of date. That method of builder financing had clearly ceased to exist by late 2005.

The INE composite index also suffers, as it must, from this drawback, but not as much as does the MVIV version - this despite the fact that this latter bunch throw everything but the kitchen sink into their calculation. Clearly the miscreant result of a ministry of no particular utility having too much time on their hands.

The more accurate series in the graph are certainly the INE's used home sales and the Tinsa assessed value index. The very rapid drop of the former particularly over 2008 is probably the effect of speculator liquidation. That the Tinsa numbers don't reflect the severity of the plunge (but do end up in the same place) may be fruit of a certain amount of marketing discretion on the part of that large property assessment company. They were, after all, until just a couple of weeks ago owned by the nation's cajas de ahorros.

Other interesting tidbits that can be surmised from the chart include:

1). That the INE composite index refused steadfastly to be kept pointing upwards by the apparently very strong new home component through Q2 2008 shows fairly well how few off-plan or outright purchase new home transactions were being concluded by that time - in fact very similar to current numbers;

2). The INE new home line shows current prices higher than they were in 2007. This should be read, for the same reasons, as 2005 - the year in which prices were actually contracted. The market was already dead in '07, the year in which the banks and cajas began to take back equity for debt. Confirming this would be the fact that current Tinsa assessed levels are equivalent to those of five years ago.

We have, by the way, no explanation for the divergent results for the most recent period. The INE claims actual price increases, Tinsa mild declines and MVIV says that prices continue to fall at a hefty one and a quarter percent every three months. Let it be said, however, that having waded our way through lots of their really badly constructed data, we trust this last lot the least.

Our personal opinion is that Tinsa is on the mark. Even though they remain negative, it looks like their index might be showing flat to slightly positive annual changes in six months time.

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