Financial Crisis and Real Estate Activity: The Spanish Evidence

Considerable debate has arisen recently about the behaviour of the banks during the present financial crisis. In particular, some argue that banks have not changed their lending policies substantially in the last few months. This discussion has been especially vivid in the US, and among several experts of the Federal Reserve System. In this paper we examine this issue for the Spanish economy and the real estate industry, where banks happen to be the main providers of funding. Our intuition, based on casual observation, is that banks have reduced substantially the amount of funds they provide for housing purchases of households and to firms involved in real estate activity. In addition, our impression is that they have increased the risk premium they charge and requested more guarantees from debtors. We want to analyse whether these beliefs are confirmed by the data; moreover, we intend to discuss in the paper what the pattern of banking lending to developers and potential house purchasers has been in the last few years, regarding * Quantity of funds made available to the firms and consumers; * Rate of interest; * Type of credits (short term, long term, assets guaranteed loans) // Furthermore, we want to inquire which kind of effects have been brought about by this patterns, and more in particular, if we find evidence supporting the credit constraint hypothesis, whether bank lending constraints have exacerbated the ongoing real estate crisis.