Economy Watch: Spain Asks for Help, Gets $125B for Banks; Multi-Family Market Shows Improvement

By Nicholas Ziegler, News Editor

Image courtesy Flickr user Jim D. Woodward

On Sunday, Spain became the largest of the euro-zone countries to request a bailout, and European finance ministers agreed that banks of the beleaguered nation could receive up to $125 billion, or 100 million euro, in funds to keep them afloat. Prime Minister Mariano Rajoy took steps to avoid using the word bailout in connection with the funds — preferring to call the money a line of credit but also noted that this year is going to be bad one. Spain is also facing a near 25 percent unemployment rate across all age groups, but perhaps most startling is the 51 percent rate for job seekers under the age of 25.

The 17-member Eurogroup, of which Spain is a part, said on Saturday that it was prepared to lend up to $125 billion, which will come from one of the three pools of emergency financing available to member nations. The money will be sent to Spain’s Fund for Orderly Bank Restructuring — with the acronym FROB in Spanish — which will then use the money to undergird the country’s wobbling banks.

According to a report by Bloomberg, German Finance Minister Wolfgang Schaeuble said Spain’s debt-to-GDP ratio was more favorable that even Germany’s, with Spain at 78 percent of GDP and Germany’s at 82 percent. “Spain is making the necessary reforms to improve its competitiveness and to limit its fiscal policy to a sustainable deficit. By the way, Spain’s overall debt (ratio) is lower than Germany’s,” Schaeuble said.

But while the banks may be receiving a temporary infusion to keep things moving, the country itself still faces a crisis. In early May, Spanish bank Bankia – the largest of several institutions saddled with too-large mortgage losses after the bursting of the construction bubble – was nationalized, but still requested $24 billion of additional capital.

Rajoy further predicted that Spain’s economy will still contract the previously expected 1.7 percent in 2012 despite the help.

Bond markets over the weekend rallied behind the welcome news, with Spanish and Italian bond yields falling after the deal eased fears of a run on Spanish banks. But the situation hasn’t fully resolved, which could possibly lead to a fizzling, short-lived market recovery that could be exacerbated by the next crisis in the euro zone.

Apartment, Condo Market Shows Improvement in May

But not all the weekend’s news was bad. The National Association of Home Builders announced that the Multi-Family Production Index, or MPI, reached its highest rating since the third quarter of 2005. The index reached 51 on a 100-point scale, up from 49 in the last quarter of 2011, marking the seventh consecutive month of an increase.

“In spite of continuing difficulties in the capital markets, it appears that new construction is underway, said W. Dean Henry, president of Legacy Partners Residential and chairman of NAHB’s Multi-Family Leadership Board. This is certain to help satisfy some of the pent-up demand that has occurred over the past several years.”

Further, the association’s Multi-Family Vacancy Index, which measures the sector’s perception of vacancies, dropped to 31 — its lowest reading since the index’s creation in 2003 — which means fewer vacancies in the apartment market. The MVI has decreased considerably in the last three years, peaking at 70 in the second quarter of 2009.

Multi-family construction continues to be a bright spot in the overall housing market, said NAHB Chief Economist David Crowe. However, as indicated by the MVI, demand for apartments is now quite high, and production is still very low in a historic context and in the context of what we project is necessary to meet long-term demand.