Spanish banks could be €50bn short of new capital requirements, says Moody’s, revising its previous estimate of €17bn based on old requirements. This is roughly 5 per cent of Spanish GDP and considerably higher than the Spanish government’s estimate of €20bn.

Overall savings banks’ exposure to the real estate sector is €217bn, by Bank of Spain data. Of that, €100bn, or nearly half, is considered “problematic”. €28bn are under surveillance and considered risky; a further €28bn are more than 90 days past due; and €44bn are foreclosed. Problematic indeed. The most troubling sentence from the Moody’s report is that just 40 per cent of the €217bn loan exposure is collateralised by finished, completed housing:

 Read more

Feel the pain and move on in the UK housing market. Specifically, set up a UK Tarp to buy troubled mortgage-backed assets from banks. That’s advice to the Bank of England from Fathom Consulting’s monetary policy forum, quoted by Stephanie Flanders.

Fathom argues that the US and UK are falling into the Japanese trap – only drip-feeding cheap debt to households rather than businesses. In so doing, they argue, households feel richer and spend more, and lenders safeguard the value of the assets they are lending against. But the problem doesn’t go away. Far from it. The problem is just postponed, and at the current rate of house price decline, will amount to a £180bn funding gap by 2012 when the BoE’s Special Liquidity Scheme is due to end.

The report is only available to members, but I recommend a read of Stephanie’s take: Read more

As the BoJ and ECB report easing credit standards, the Bank of Ireland has just proposed a new consumer code that includes stricter tests for mortgages and consumer credit. New provisions for housing loans include a 2 per cent stress test on the bank’s standard rate and stricter rules on what will and won’t count as proof of income. Self-certified declarations of income, for instance, would be out.

Another significant suggestion in the mortgage market applies to brokers. Mortgage intermediaries are not currently covered by rules that bind insurance brokers, for instance, to disclose the commission they receive on certain products. The new code would extend this requirement to them. Read more

UK house prices are going down very quickly, up very quickly, or mostly static (using Halifax, Rightmove and Nationwide indices respectively). But we should not discard indices when they diverge: the apparent confusion masks something useful. Below is a handy guide to interpreting UK house price indices.

Each index tells us something, and the differences between them tell us even more. Asking prices are rising (Rightmove, non-adjusted) while mortgage approval prices are falling, particularly at the lower end of the market (Halifax and Nationwide). The Rightmove index could suggest prices are about to start rising again, but is more likely accounted for by seasonal effects as Rightmove itself points out. Read more

Ben Bernanke, chairman of the US Federal Reserve, said on Monday that regulators were “intensively” probing banks’ foreclosure practices and expected to produce results next month. Some of the largest US banks have halted moves to claim back homes from borrowers after it emerged that they had cut corners in preparing paperwork; state attorneys general are investigating allegations of fraud.

The Fed chairman told a conference on the future of housing finance that regulators were “looking intensively at the firms’ policies, procedures, and internal controls … and seeking to determine whether systematic weaknesses are leading to improper foreclosures”. Read more

The impact of foreclosure documentation problems on the housing market is “still uncertain” and may cast a cloud over the sector for “the foreseeable future”, said William Dudley, president of the Federal Reserve Bank of New York.

Mr Dudley, a member of the Fed’s policy-setting Federal Open Market Committee, is a supporter of further monetary easing, saying recently “further action is likely to be warranted” by the central bank. This was interpreted as a sign that purchases of US Treasuries by the Fed – quantitative easing – would step up in November. Read more

When the IMF evaluates a situation, the result is usually evenly balanced: it’s quite bad, they might say, but then this and this are quite good. So you notice right away if that counter view is missing and they say simply: this is quite bad.

This is how US real estate has been evaluated in the IMF’s latest Global Financial Stability Report. Look for the box Risks of a Double Dip in the US Real Estate Markets (p. xxxiii) – and then look for the good news.

“Powerful downside risks” to residential property prices include low demand; surplus of houses for sale; high rate of foreclosures; and rising ‘strategic’ defaults. But commercial real estate is worse.

“Banks face about $1.4 trillion in CRE loans expected to mature in 2010-14, nearly half of which are seriously delinquent or ‘underwater’,” Read more

Central banks are debating whether they should extend their remit to spot asset price bubbles – but research from the Bank for International Settlements has just found that the ageing population will depress, if not reverse, price rises in future.

“In English speaking countries it seems that baby boomer purchases drove up house prices in the past, while their sales will drive real house prices down in the future,” writes author Előd Takáts. The US has apparently enjoyed an 80 basis point per annum (bppa) boost to date, but is facing a negative impact of 80bppa in future. Read more

Ralph Atkins

Eurozone housing markets are springing back to life. The European Central Bank reported on Tuesday that mortgage lending grew in June at the fastest annual rate for almost two years. Its latest bank lending survey, based on responses from 120 banks, showed second quarter demand for mortgages was the strongest since early 2006.

All of which tells a positive story about the eurozone—at least for eurozone optimists. While attention has focused on the problems of Greece, Spain and Portugal, households elsewhere have spotted that mortgage interest rates are at exceptionally low levels, and have been sufficiently confident about their economic prospects to buy a house.

A less positive interpretation is that consumers are worried about the stability of the euro and see bricks and mortar as a better investment. Gilles Moec, European economist at Deutsche Bank, warns that the ECB might also be less than pleased. He points out the sharp contrast between the revival in mortgage lending and the lifelessness of lending to companies. Read more

If rumour is true, things are looking up for the 100,000 Hungarians more than 90 days past their mortgage due date. What’s left of Hungary’s international loan may end up in a mortgage-relief fund, intended to allow people to rent their homes, reports Reuters.

The new fund – reported in daily Magyar Hirlap and not yet confirmed by officials -  would buy property (that would otherwise stand to be repossessed) from commercial banks, allowing mortgage-holders to rent the property. The paper also said that the bad loans of households would be replaced by state loans, though it did not name a source. Read more

The Chinese government has raised the deposit requirement to 50 per cent (from 40) on purchases of second homes, in an apparent bid to dampen enthusiasm for property speculation. First-time buyers will also need bigger deposits – a minimum of 30 per cent, up from 20 per cent – where the property covers more than 90 square metres.

Reuters also reports that banks must set mortgage rates on second homes at a minimum of 1.1 times the central bank’s benchmark rate. At the moment, banks can charge rates they deem appropriate. Read more

European house prices are more sensitive than American house prices to credit supply shocks. But there is a stronger role for housing in the transmission of monetary policy shocks in the US than in Europe.

These are the main findings of an ECB working paper just out that compares housing, consumption and monetary policy in the US and EU. Read more

Is Norway calling the bottom of global property markets? Its central bank has given approval for its oil-funded sovereign wealth fund to invest up to 5 per cent ($22bn) in the asset class.  “Investments will principally be made in well-developed markets and within traditional types of real estate,” Finance Minister Sigbjoern Johnsen told Reuters. “We must be prepared for real estate prices to fluctuate a good deal.”

Norway has form calling turning points. Last year the fund was allowed to increase its proportion of equity holdings to 60 per cent. During that year, major indices rose about 50 per cent. The fund made 13.5 per cent in Q3 alone. I wonder if they’re planning to reduce the equity proportion now (Bloomberg).

“Investors view this as shockingly bad news”: one assessment of Dubai’s request for a freeze on all financing to Dubai World, the government’s heavily indebted flagship holding company. The requested freeze would last till May 30, and would cover DW’s troubled property unit Nakheel, which is due to pay back $4bn on an Islamic bond on December 14. Dubai sovereign CDS spreads rose 130bps from an overnight level of 318 and LSE shares fell – the exchange has a 20 per cent stake in Borse Dubai.

Meanwhile the “gold up, dollar down” trends continue. Sri Lanka has bought 10 tonnes of gold from the IMF Read more

The ratings agencies have been busy: we are awash with downgrades and warnings. First up, S&P. They have ranked banks’ health using a new methodology, and it makes for grim reading. Just nine of 45 banks exceeded the minimum “risk-adjusted capital” ratio (for example, HSBC did well; UBS and Citigroup less so). The results are important because the new methodology foreshadows the new capital regime ratio likely to be adopted by Basel next year. S&P conclusion: “Capital for the majority of banks remains a relative weakness.”

Next, Fitch has downgraded Mexico to BBB, just two notches above junk status. Read more

Capital control, anyone? Emerging markets are taking action to curb currency appreciation. Brazil – whose economy is recovering well – introduced a 2% tax on foreign capital inflows last month, and has just announced a further measure, effective today: there will be a tax on American depositary receipts, which allow foreigners to invest easily in Brazilian stocks. Meanwhile Indonesia has announced possible capital controls, sending its currency sharply lower.

The flight to gold continues, Read more

Forget carry trades, forget risk appetite: “Changes in the dollar correlate more closely to changes in international reserves than any other variable since 1999.” So China has “far more control over the price of the dollar than the US.”  The US has little control over the dollar, especially treasury secretary Tim Geithner, in spite of his oft-stated desire for a strong dollar, agrees The Economist: “Yeah, right. I have a “strong man” policy under which I intend to become world heavyweight champion. I’m just not planning to do anything about it, like train or fight someone.” Read more

The IMF has issued a warning about asset price bubbles forming in Latin America, echoing concerns about bubbles in East Asia. As regulators and legislators in the US and UK argue over the best way to prevent another Lehman’s, the US government enters into a new $5.6bn bail-out Read more

China, India and Australia should all consider tightening monetary policy, says the IMF. Emerging economies show healthy signs, as US legislators fight to keep the house market moving, against falling prices, credit warnings and reduced mortgage applications Read more

Some consensus among the American media that extending the US housing tax credit is a bad idea. And a conflict between those who think banks should be made smaller, and legislators, who are currently pursuing a strategy of better monitoring and increased powers over big banks Read more