Citi’s Willem Buiter is out with a big call on Spain, and how things are going to get much worse, and how ultimately the country will need outside assistance in some way. Given that Spain is much bigger than Greece, this is a very big deal.
We have the full gory details of the report here.
One key element of his call relates to real estate, and his belief that the collapse in that market is not done. In fact, he doesn’t even think it’s close.
The decline in Spanish land and property prices appears far from complete (probably less than half complete). The General IMIE Index, an indicator created by Tinsa, increased its year-on-year decline in February, and fell by 9.5% – returning to the levels of 2004. The cumulative decline in the General IMIE Index from the top of the market in December 2007 was 27.1%.In addition to the hidden legacy losses carried by the Spanish banks, new property- and real estate-related losses are likely to come their way as a result of further property price declines. The Spanish banks are unlikely to be able to absorb these losses. If these institutions are deemed too important to fail, these losses could migrate to the public sector, which could have severe problems carrying them.
In the footnotes, he says that he expects a 60% decline in housing prices, based on the fact that Ireland had a 50% decline.
He also links out to this report from TINSA, showing the state of the index.
That report includes this chart, which shows how far the housing market has fallen (back to 2004 levels, as Buiter states) and how much more there is to fall if an Ireland-like collapse completely takes place.
Click on the image to enlarge the chart.