Spanish Assets Wildly Overweighted with Housing

click for larger graphic

Source: The Pain in Spain

 

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Real Estate comprised 79% of Spanish household assets, according to Jon Carmel at Carmel Asset Management (he credits the chart above to Oliver Wymann). That is 50% more than many other European countries, double the UK and triple the US.

I would expect mean reversion to be rather discomforting.

With all eyes on Greece, Carmel sees Spain as “worse than the market anticipates.” He points out these 5 bullet points as to why Spain’s RE market has much further to fall:

1. Spain’s national debt is 50% greater than the headline numbers
Spain’s debt-to-GDP balloons from 60% to 90% of GDP with regional and other debts

2. Spain’s housing prices will fall by an additional 35%
Spain built one house for every additional person added to the population during the
past two decades; the fall will decrease GDP by ~2% each of the next two years

3. Spain has “zombie” banks with massive loans to developers and to homeowners
Banks have not begun to realize losses and are vastly undercapitalized

4. Spain’s economy has not stabilized and will continue to deteriorate
Spain has the highest unemployment in the developed world, one of the highest overall
debt loads, and the most uncompetitive labor market in Europe

5. The EU will not have the firepower or political will to bail out Spain
Rescue fund headline numbers are misleading and count capital that is not yet
committed

Fascinating stuff . . .

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