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Tuesday, September 18, 2007

A Spanish Perspective

Top Spanish economic advisor states that a drop in the Spanish housing sector is "unthinkable". One can understand that reaction, because more total employment is related to housing in Spain than in the US. Ah, but will it happen whether we refuse to think about it or not?
``To talk about severe adjustments or a meltdown in prices is ridiculous,'' Taguas said in response to reports pointing to an end of the Spanish real estate boom. ``That sort of crisis is unthinkable.''

The gains in house prices are already slowing and excess supply may lead to a decline, predicted Gonzalo Bernardos, an economics professor at the University of Barcelona, who expects a 20 percent drop by 2009. Home prices rose 5.8 percent in the second quarter from the year-earlier period, the smallest increase in at least three years.
I strongly recommend reading the whole article, not for schadenfreude but for a little insight into our own situation. Here's a Hong Kong paper's take:
On a street corner in Tetuan, a working-class area of Madrid, handwritten "for sale" notices have faded to yellow as owners hold out months for their asking prices, refusing to believe that a nine-year property boom is over.

Having gained 190 percent since 1998, one of the world's hottest property markets has finally succumbed to high lending rates, oversupply of a million homes in the past four years and prices that are up to 30 percent overvalued.

Real estate agent Angel Velazquez says some homeowners in Tetuan have cut prices by up to 25 percent to try to attract a buyer, while small property agencies have gone under after months without a sale.
There are similar bubbles all over the world. Over at Calculated Risk (where the news and commentary is picking up pace and getting even more interesting) a UK commenter posting as UK Renter claimed that the UK housing market was much more unstable than in the US:
the UK is screwed. our bubble has been way bigger than the US, we are just 2-3 years behind you guys in the crash. i have been busy the last few weeks moving all my money from GBP to USD...above 2.00 is crazy, i don't think it will take long for sterling to be below 1.50, and well on its way to 1.00.

the uk housing bust is going to be bigger AND FASTER than anyone can imagine...mortgage rates of ~4% 2 years ago are now resetting at well over 6%...and prices are up, what, maybe 50-100% since then, depending on your area? nuts.
Maybe instead of doing this "mine's bigger than yours" stuff we'd all better start trying to figure out how to deal with our own messes. Wikipedia's real estate bubble entry has links to many of the areas experiencing them.

Have you seen the Economist's housing price chart that J-M Feddersen posted on September 13?

It shows the U.K. with a ~1500% runup since 1975, compare to the U.S. at slightly over 600% in the same period.
I am not sure that the figures since 1975 are the problem. The figures on total UK consumer debt since 2001 are. And now interest rates are moving up sharply.
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