Chappaqua NY Sales 2012 2011 100 Sales 105 0.047 DOWN $885,250.00 Median Price $871,250.00 0.016 UP $225,000.00 Low Price $400,000.00 $2,575,000.00 High Price $2,785,000.00 3606 Ave. Size 3313 $290.00 Ave. Price/foot $298.00 176 Ave. DOM 165 0.9568 Ave. Sold/Ask 0.9489 $1,030,634.00 Ave. Sold Price $975,774.00
Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings.
Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages.
“There will be more serious price drops this year because of the government decree,” said Fernando Rodriguez de Acuna Martinez, a partner at the Madrid-based firm. “Banks are now prepared to incur big losses on real estate to shift all they can.”
Spain’s Prime Minister Mariano Rajoy and his People’s Party are betting the overhaul will help bolster confidence in the country’s banks without undermining a drive to tackle its budget deficit that’s threatening to reignite Europe’s debt crisis. The move is likely to force banks to sell assets cheaply, accelerating a four-year decline in residential property prices that are already 30 percent below the peak.
Government Decree
The government’s Feb. 2 decree on real-estate provisions is already leading to reduced sales prices. In the week after the plan was announced, more than 10,000 homeowners who use Idealista.com, Spain’s largest property website, lowered their asking prices. That’s 30 percent more than the weekly average during the previous month.
Banco Santander SA, Spain’s largest lender, and CaixaBank SA, the fourth-largest, are offering homes at discounts of as much as 50 percent on their Altamira and Servihabitat property websites. Bankia SA, the No. 3 bank, went even further on March 15 by announcing that the company aimed to sell 9,000 properties this year at discounts of as much as 60 percent.
Spain’s IBEX 35 benchmark index, which fell as much as 1.8 percent in intraday trading today, closed up 0.4 percent. Shares of Santander rose 0.2 percent to 5.78 euros, erasing an earlier 3 percent drop. Banco Bilbao Vizcaya Argentaria SA, the country’s second-largest lender, rose 0.1 percent.
Spanish banks account for five of the top six worst- performing stocks on the 48-member Euro Stoxx 600 Banks Index this year.
‘Can’t Compete’
Theresa Legarra, a 33-year-old sales manager from Madrid, said she can’t compete with the banks when it comes to selling real estate. She and her ex-husband bought an 85 square-meter (915 square-foot), two-bedroom home in Pozuelo de Alarcon, one of Madrid’s most affluent suburbs, in 2006 for 385,000 euros. To pay for the property, they took out a mortgage with Caja Madrid for 85 percent of the purchase price. Caja Madrid is one of the seven Spanish savings banks that merged to form Bankia in 2010.
Six months ago, the apartment was put on the market for 350,000 euros, about 20,000 euros more than the outstanding mortgage on the property.
“The telephone hasn’t rung once,” Legarra said during an interview in Madrid. “Three separate real-estate agents say I need cut the price to 300,000 euros to have a hope of selling.”
About 20 percent of Spanish mortgage borrowers owe more on their loan than their property is worth, up from about 8 percent in October 2010, according to a study by Andrew South, the London-based head of European structured finance research at S&P.
‘Negative Equity’
“If house prices were to continue to decline at their current rate this year, the number of borrowers in negative equity by the end of 2012 could be closer to 25 percent,” he said in an e-mail.
The S&P study was based on an analysis of 800,000 Spanish mortgages, two thirds of which were granted between 2006 and 2008, and includes loans predating 2000. In January, residential mortgages fell 41 percent from a year earlier, the 21st straight decline, according to the National Statistics Institute.
Asking prices have fallen by an average of almost 30 percent from their high in April 2007, according to a March 1 report by Fotocasa.es, a real-estate website, and the IESE business School.
Spanish home prices fell 11.2 percent in the fourth quarter from a year earlier, the most on record, the National Statistics Institute in Madrid said on March 15. By their measure prices are down about 22 percent from the market’s peak in the third quarter of 2007. Home prices in Ireland and the U.S. have fallen 49 percent and 34 percent respectively from their highs.
‘Delayed Declines’
“We suspect house prices have fallen by more than 30 percent since the peak, but accept that some of the downward price adjustment may have been delayed by banks hoarding large portfolios of repossessed properties,” Raj Badiani, an economist at IHS Global Insight Inc. in London, said in a March 15 note.
Financial institutions have foreclosed on 328,720 homes since 2007, according to Plataforma de los Afectados por la Hipoteca, a group known as PAH that campaigns against evictions. That number may balloon to as many as 600,000 in the years ahead as unemployment increases, Taurus Iberica Asset Management estimates. The Madrid-based company manages 35,000 foreclosed properties for 25 lenders.
Banks have also acquired properties from developers to cancel debt and may have as many as 900,000 finished, unfinished and foreclosed homes on their books, according to Borja Mateo, author of “The Truth About the Spanish Real Estate Market”
Aversion to Risk
In Spain, which has euro region’s fourth-largest budget deficit, bond yields have surged and banking stocks have plunged as investors shun risk. According to Fernando Encinar, co- founder of Idealista.com, the biggest problem is that investors distrust the valuation of real-estate assets held by banks and the government has offered a solution by pushing them to sell assets at market price.
Spanish 10-year borrowing costs have jumped 44 basis points to 5.33 percent since March 2, when Rajoy raised the country’s budget deficit target for this year defying his European Union Allies.
He’s struggled to cut the funding gap since he was elected in December and his government faced its first general strike on March 29. Mario Monti, Rayoy’s Italian counterpart, said on March 24 that Spain could reignite the European debt crisis if the country’s fails to control its finances. Its gross domestic product fell 0.3 percent in the fourth quarter, as the country suffers its second recession since 2009.
Reduce the Deficit
Budget Minister Cristobal Montoro presented the 2012 budget on March 30. The government aims to reduce the deficit to 5.3 percent of gross domestic product from 8.5 percent last year even as the economy contracts.
Investor confidence in the 182 billion euros of bonds tied to Spanish residential-mortgage backed securities trails securities from Italy, the Netherlands and U.K., including that’s country’s version of subprime home loans.
The extra yield investors demand to hold Spanish RMBS above benchmarks has held at 500 basis points since the end of February, 155 basis points higher than a year ago, according to JPMorgan Chase & Co. data. A basis point is 0.01 percentage point.
Spanish banks’ average net borrowings from the European Central Bank surged in February to a record 152.4 billion euros from 76 billion euros in October as the central bank stepped up its emergency lending to avert a credit crunch, according to data published by the Bank of Spain.
‘Bring Transparency’
The extra yield investors demand to hold bonds from Spanish financial companies is 483 basis points, almost twice the 242 basis points average for the U.S. and 257 basis points globally, according to Bank of America Merrill Lynch index data.
“This will bring transparency,” Encinar said by phone. Spanish banks will be able to absorb the losses better than individual homeowners, he said.
Rajoy’s efforts to shrink the banking industry will be helped by CaixaBank SA’s plan, announced on March 27, to buy Banca Civica SA, a group of former savings banks, for 977 million euros. That will be the industry’s biggest transaction since three of Banco Pastor SA’s largest shareholders accepted a 1.35 billion-euro bid from Banco Popular Espanol SA.
The word “mortgage” originates from Law French and literally means “death contract,” or a pledge that ends when either the obligation is fulfilled or the property is taken through foreclosure.
For Legarra, who can’t sell her home to start a new life in another property or move back to her birthplace in Pamplona, the word’s meaning is significant. “It definitely feels like a hefty sentence for me.”
Fed to regularly forecast interest-rate changesIn a major shift, the Federal Reserve will start announcing four times a year how long it plans to keep short-term interest rates at existing levels, according to minutes from its December policy meeting.
The shift marks the Fed’s latest effort to make its communications with the public more open and explicit.
The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.
The Fed’s first forecast for interest rates will be included in the economic projections it will issue after its Jan. 24-25 policy meeting.
More guidance on rates might help lower long-term yields further — in effect providing a kind of stimulus. Lower rates could lead consumers and businesses to borrow and spend more. The economy would likely benefit.
Lower yields on bonds also tend to cause some investors to shift money into stocks, which can boost wealth and spur more spending.
The Fed has left its key short-term rate at a record low near zero for the past three years. In August, it said it planned to leave the rate there until at least mid-2013, unless the economy improved.
In January, the Fed will release an interest rate forecast for the October-December quarter of 2012 and for the next few calendar years, the minutes show. It will update that forecast each quarter.
After its Dec. 13 policy meeting, the Fed issued a statement that portrayed the U.S. economy as improving slightly. It declined to take any further steps to boost growth. The minutes show that some on the policy committee favored additional action to try to lift the economy — but only after the Fed’s more explicit communication policy was in place.
Mark Zandi, chief economist at Moody’s Analytics, said he thought the minutes signaled that the Fed will keep its benchmark rate at a record low beyond the mid-2013 target it previously set.
“Most people had expected the funds rate would start rising in the second half of 2013,” Zandi said. “But Fed officials seem to be more concerned about the economy’s prospects than investors currently think.”
Dan Greenhaus, chief global strategist with BTIG, suggested that the Fed will launch another bond buying program later this year to try to further drive down long-term rates.
But Paul Dales, an economist with Capital Economics, cautioned that the minutes contained few signs that a third round of bond purchases is imminent. He thinks that such a step would come only if the economy weakened.
The Fed sketched a slightly healthier view of the economy after its last policy meeting for 2011. Hiring has picked up. And consumers are spending more despite slower growth globally.
David Jones, an economist who has written several books about the Fed, said the decision to regularly update the public on expectations for interest rates carries some risk. If the Fed must alter its rate forecast in response to changes in the economy, it could lose credibility with investors.
The Fed’s plan for more explicit guidance on interest rates follows other steps to make the central bank more transparent that began under Chairman Alan Greenspan and accelerated under the current chairman, Ben Bernanke.
Last year, Bernanke became the first chairman to hold regular news conferences. He has also sat for televised interviews and held town-hall meetings.
Collectively, Bernanke’s efforts have been intended to make the Fed’s decision-making process less secretive, to cast himself as open and accessible and to counter his critics.
Not until Greenspan’s tenure did the Fed even announce any changes in its benchmark rate. Until then, financial firms had to study the Fed’s purchases of Treasurys in the bond market to try to determine whether it was raising or lowering rates.
Previous chairmen tended to think the Fed operated best when it could keep financial markets guessing.
The announcement of the new communications strategy had little impact Tuesday on Wall Street. Stock markets had surged earlier in the day on positive manufacturing news in China, India and the United States. Stocks maintained those gains after the Fed minutes were released.
The Dow Jones industrial average ended the day up 180 points, and broader indexes also closed higher.
The U.S. economy is beginning the year after finishing strong in 2011. The Institute for Supply Management said Tuesday that U.S. factories enjoyed their best month of growth in December since late spring.
And the struggling construction industry spent more on projects in November for the third time in four months, the Commerce Department said.
The reports correspond with other brightening signs. Consumer confidence is up, unemployment benefit applications have tumbled and the unemployment rate is at a 3½-year low. Most economists predict growth accelerated in the final three months of last year.
In the minutes released Tuesday, the Fed said it would also include a “narrative” to describe factors that influenced its interest-rate forecast. And the forecast will include information on officials’ expectations for changes in the Fed’s balance sheet.
The central bank began aggressively buying long-term Treasury bonds and mortgage-backed securities at the height of the 2008 financial crisis. The purchases, intended to boost the economy by driving rates down, swelled the Fed’s balance sheet to a record $2.93 trillion.
