Not Good

Data released by the European Central Bank show that real M1 deposits in Portugal have fallen at an annualised rate of 21pc over the past six months, buckling violently in September.

I realise that monetarism is rather out of style these days but even without being all Friedmanite about it, that\’s just not a good sign.

The housing market here is pretty much dead: we\’ve had our two houses on the market for a year now, reasonably priced, and we\’ve had two viewings. Much the same is true of others we know. Four local estate agents (two of them ReMax franchises) have gone bust. You\’d be lucky to get a mortgage out of a local bank even with a 50% deposit.

Down here it\’s more tourist trade than anything else and much of that has buggered off to Turkey.

I\’m extremely glad that I don\’t work in the Portuguese economy. Those I know that do are hurting badly.

And a 21% fall (yes, annualised) in M1 in the last three months? It\’s not going to get any better, is it?

Update: of course, I should have thought about people pointing fingers and insisting that if the market doesn\’t clear then obviously supply is over-priced for the market to clear.

So, let me clarify. Having taken the advice of three different estate agents we priced the houses at what they thought were reasonable prices given the state of the market. Looking (yes, we do monitor this) at displayed and advertised prices for other houses we see that, at least as far as we can see with displayed prices, that we are still at reasonable prices.

Even with that we\’re not getting viewings.

This could of course mean that the entire market is wildly overpriced. Indeed, probably does, although why houses at replacement cost are overpriced is another matter. There is still net in migration to the Algarve (the flood of Portuguese abroad is largely coming from the industrial areas up north where house prices are absolutely minimal).

The why the market is overpriced seems to be the lack of available credit. Cash buyers only, or at least 50% cash necessary.

Does that clear things up?

And as to why we don\’t slash our prices in order to move the stock: we don\’t need to. At or around the current pricing we\’re indifferent as to whether we sell and move or stay put. Higher pricing we\’d love to move. Lower than current and, Meh, nice place, done up how we like it, no financial reason to move, so why bother?

13 thoughts on “Not Good”

  1. So perhaps the houses are not “reasonably priced”!!

    Tim adds: Possibly true: but we took the best advice we could get. Compared to prices around us. Our contacts in the local bank, the local mutual, tell us that no housing is moving at near any price.

    Pricing is only a little over replacement cost (ie, there’s almost nothing in there for value of plot or planning permission) and it’s certainly strange for property to go below that cost.

  2. I find these two statements to be somewhat contradictory:

    “on the market for a year now, reasonably priced”

    “we’ve had two viewings”

    but yes, a 21% fall in three months is *not* a good sign…

  3. Er, Tim, there is no “reasonable price” (or a “just” price”). There is just an asking price, and if the market won’t clear at that price, it’s too high.

    This is pretty much How Markets Work 101, you know…

    Oh, and remember, M1 isn’t actually money. It’s a hopeful future claim on some M0, which is the equivalent of the “gold” in a fiat system.

  4. A mate of mine in Cascais tells me his translation business, which usually keeps him fairly busy, has dried up completely.

    I was surprised, when we were there in August, exactly how relatively empty of foreign tourists it seemed compared to when I lived there in the 90s. Makes for relatively pleasant nights out, mind. 😉

  5. House prices can fall below replacement cost. It happened in London 1992-1995.
    Mind you land + planning = negative £ was a buy signal.

  6. But markets are always right! Sorry could n’t resist it.
    Obviously in Portugal cheap Euro credit meant for goods and services (in the German manner:their real estate is the same price as in the 70’s) got diverted into inelastic real estate
    and has now paralysed the whole system.
    The land taxers did point out this could happen .

  7. When prices are quoted in escudos the market will clear. Meanwhile, if I was a Portuguese salary man I’d be pretty leery of taking out a mortgage in what is likely to become a foreign currency.

  8. “why houses at replacement cost are overpriced is another matter”

    Not a huge surprise – there’s never a guarantee that something will sell for more than it costs to produce. If it were, this business lark would be much easier.

    In this case I’d guess it’s location – not enough demand for houses (or houses of your size or type) in that area.

    Possibly just a short-term credit shortage thing, possibly a longer term problem that there aren’t the jobs in that area to afford the building cost of that sort of house (and not enough people like you looking to bring in income streams from outside).

    What the market’s saying is that if they hadn’t been built, they wouldn’t be built now. Which, if nothing’s being built there just now, is probably accurate.

  9. Aha, now this could be part of the reason.

    From 2000 to 2010, the number of households in Portugal increased by around 200,000
    (www.eci.ox.ac.uk/research/energy/downloads/lcfreport/appendix-s.pdf)

    But around 750,000 new homes were built
    (www.globalpropertyguide.com/Europe/Portugal/Price-History)

    I guess it was kept going for a while by tourists and some speculative froth, but now that’s disappeared there’s an oversupply (which, at that rate of household growth, could take 25 years to clear).

  10. And if that wasn’t bad enough, most of Portugal’s population increase over that period was immigrants from piss-poor countries.

    The biggest groups were from Brazil, Cape Verde, Angola, and for some reason Ukraine, Romania and Moldova.

    150,000 net immigrants (although fewer households of course) from those countries alone – that’s a huge slug of the new households.

    And unfortunately I’d guess few of them will be in the market for Castelo Wortall.

  11. Even an overpriced house in a good market gets viewings. It won’t sell of course, but you’ll get some optimists hoping to talk the price down. Two viewings suggests it’s not the price that’s the problem.

  12. This blog http://www.chevallier.biz/ states that M1 in eurozone represents 50% of GDP versus 15% in the united states.

    Apparently, it is not a good state of affair, so maybe the reduction in M1 in portugal is the start of a readjustement.

    Re-your houses, as someone pointed out before, once they are priced in escudos, they will have a much better chance to clear…

    At present, there is a good chance that they will, so paying euros now may not be a good idea.

  13. Lack of available credit means the price to sell has to be lower. Just more evidence that “value” really is subjective even for libertarian free-er marketeers.

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