Spanish Property Market Report 2008/2009

The sun sets on the Spanish property market

The sun sets on the Spanish property market

This time last year I wrote that if Spain went into recession, then “most segments of the Spanish housing market are doomed to stagnant or falling prices for years to come.” Spain did go into recession in 2008, and it is fair to say that property prices are now falling across the board. The questions now are ‘how far will they fall?’ and ‘how long will it last?’

I try to tackle these questions in what I hope will be the gloomiest annual report on the Spanish property market that I ever have to write. Let’s hope I have better news to report here in a year’s time.

In all the gloom there is one interesting trend, namely the market being made by British vendors who have to sell but who also benefit from the weak pound. Without them, the property market in many popular coastal areas would not have a pulse.

Sadly, this trend is also a reflection of the woes of many British people who invested in Spain in recent years. They bought in the boom and are trying to sell in the bust, and many of them are trapped in Spain on declining incomes. There is a depressing personal story behind every distressed sale.

So, after that uplifting introduction, let’s look at what actually happened to the Spanish property market in 2008, and what to expect in 2009.

Spanish Property Prices Fall

According to official figures from Spain’s housing ministry (for what they are worth), average Spanish property prices fell by -3.2% in 2008, down from a rise of +4.8% in 2007, and way off the heady double-digit annual increases over the 4 years 2001 – 2005 (+18.5% in 2003 alone).

After adjusting for inflation, real Spanish property prices fell by -4.6% in 2008, compared to an increase of +0.6% in 2007, when the government was still repeating its mantra of a ‘soft landing’.

In both nominal and real terms, these are the biggest price falls for more than a decade.

The following chart shows how average Spanish property prices have changed each year in real and nominal terms since the start of the decade. It also shows quarterly prices changes (nominal) in the period.

Spanish property price graph

Spanish property price graph

Over 10 years, average Spanish property prices are still up by 167%, that is they have more than doubled. At the end of 2007, prices were up by 197%, almost triple, but price declines in 2008 have brought the level of capital gains over the decade down a bit.

In regions such as Malaga Province (Costa del Sol), prices are still up 265% in a decade, that is more than triple.

As you might expect from a country as large and diverse as Spain, price performance differed significantly across regions.

The following chart shows how Spanish property prices have changed over the last 12 months, and the last 10 years, for a selection of regions popular with foreign buyers (all according to the government’s figures).

Spanish property price table

Spanish property price table

So much for the government’s figures. The problem is, they might not be very reliable, to put it politely. They are bases on valuations, rather than transaction prices, and not a few people, myself included, don’t trust them one bit.

There are, however, other sources of housing market data available to help build a picture of the current state of the market.

Anecdotal evidence from estate agents suggests that sale prices in many coastal areas popular with foreign holiday-home buyers are down by something like 20% to 30% in the last 12 months.

According to the housing index prepared by IESE Business School in conjunction with the property portal Fotocasa.com, asking prices for resale properties (flats only, which make up the bulk of the market) fell by -8.7% in 2008, compared to a fall of -1.1% in 2007, and a rise of +7.7% in 2006 .

+ See overview in English of the housing market at fotocasa.es website

Spain’s leading appraisal companies agree that prices fell last year, but differ as to how much.

Tinsa says prices fell by 8.8% last year, taking prices back to where they were at the start of 2005, and that property values on the Spanish Mediterranean coast, where most foreigners tend to buy, fell by 14.3%. Sociedad de Tasación says that new build prices fell by 6.6% last year.

The OECD, a Paris-based club of rich countries, estimates that prices have fallen by 10%.

Even the developers concede that prices have slumped, and look set to continue falling.

New build property is now between 15% and 20% cheaper,” said Pedro Pérez, General Secretary of the G-14 group of Spain’s biggest developers, recently quoted in El Pais. “This is the biggest fall we have ever seen. Furthermore, 2008 has been the worst year since property statistics began. Despite all this, I don’t see any light at the end of the tunnel. And if there is no change, prices will continue falling.”

So, the government’s figures aside, the overall picture was of double-digit price falls in 2008, especially on the coast.

Sales Evaporate

Unlike its price data, the government’s sales statistics are fairly reliable, and tell of a rapidly shrinking market.

According to the Ministry of Housing, residential home sales fell by 33% in the first 9 months of 2008 compared to the same period the year before, with resale activity falling 47%, and new build 16%.

The National Institute of Statistics (INE) has sales down by 29% over 11 months to the end of November, with November itself down an annualised 37%.

The plunge in sales means a longer average time on the market for property. This is reflected in data from Fotocasa.es, showing average listing times rising from 70 days in mid-2007, to 215 days at the end of 2008.

So, whichever figures you look at, there were far fewer homes bought and sold in 2008 than in the previous year.

The situation is even more dire for developers, who have seen demand for off-plan property literally evaporate. The problem for developers is, why take the risk of buying off-plan when there are so many newly-built properties to choose from, and when prices are going down?

Spain’s 5 biggest developers, all quoted on the Madrid Stock Exchange, made a combined figure of 69% fewer pre-sales in the first 9 months of 2008 compared to the year before. One developer’s pre-sales fell by -101% as buyers pulled out of their sales contracts, preferring to lose their deposits than go through with the purchase. Some of Spain’s biggest developers, like Martinsa-Fadesa, have collapsed into administration. Others are teetering on the edge.

Demand Slumps

Sales are falling because demand has shrivelled up.

Demand has declined because property became unaffordable as cheap money and speculation drove prices up during the boom.

Although rising prices tend to stimulate demand for property for a while, there comes a point when the bubble bursts. Then comes the paradox of falling prices reducing demand even further, as people expect to buy cheaper tomorrow. That is what is going on in Spain today.

And on the coast, where the majority of properties are holiday homes, demand has been hit particularly hard.

For a start, demand for holiday homes – the ultimate extravagance – always dries up in recessions. This looks set to be the biggest recession since the war, so a collapse in demand for holiday homes is to be expected.

Secondly, speculative investors have fled. They were a big part of the market in the boom. The only investors around now are bargain hunters and bottom-fishers, who are hardly about to resuscitate the market.

Then there is the weak pound, which has left British buyers without any firepower.

For the past decade the British have been the biggest group of buyers after the Spanish, so their disappearance leaves a big hole in the market.

British buyers have also been turned off by a series of property scandals (illegal building, “land grab”, corrupt mayors, dodgy developers, etc.), and the gradual realisation that making money out of property abroad is not as easy as it appears on the telly.

Demand for second homes amongst Spaniards – traditionally the biggest group of buyers – has also taken a dive since the start of 2008.

Spain looks like it is going into a severe recession, with unemployment rising by 1 million (47%) over 12 months to the end of January 2009, and 200,000 people losing their jobs in January 2009 alone. There are 3.3 million unemployed in Spain today, and some expect it to hit 4 million by year end. Fearful of losing their jobs, Spaniards are not in the mood for buying holiday homes right now.

That Crunchy Feeling

Another major reason for the collapse in demand for Spanish property, and holiday homes in particular, is the credit crunch.

Without credit, most people cannot afford to buy holiday homes in Spain.

New mortgage approvals fell by 35% in the first 9 months of 2008, compared to the same period the year before. Banks can’t lend like the used to thanks to rising default rates (up from 0.64% in September 07 to 1.83% in September 2008, and expected to go much higher) and the death of the mortgage securitisation market.

Where they do lend, banks are using more conservative mortgage valuations and loan-to-value ratios, and have tightened up their lending criteria.

On the other hand, Euribor – the rate normally used to calculate mortgage payments in Spain – plunged 90 basis points (a change of -21%) to 3.45% in December, bringing some relief to borrowers on annually resetting Spanish mortgages. Many borrowers, however, will not see their interest payments fall for months to come.

Monumental Housing Glut

According to a study by José García-Montalvo, a professor at the Pompeu Fabra University, there are more than 1 million newly-built homes on the market, which will take developers more than 3 years to offload at current sales rates.

BBVA, one of Spain’s biggest banks, estimates that there are between 800,000 and 1.4 million new homes languishing on the market in search of a buyer. “We prefer to talk of a range, because it is a difficult calculation,” explained José Luis Escrivá, head of research at BBVA. “I dare say that the figure is probably above a million, and it will continue growing in 2009.”

On the other hand, the Ministry of Housing recently estimated the inventory of new homes at just 650,000. As with prices, the government’s figures are probably wide of the mark.

When you include the number of new properties for sale from investors, the situation is even worse. By some estimates investors bought 30% to 40% of the new properties sold during the boom years, and many of them are now trying to sell.

There is also a growing number of resale properties on the market, as reflected by lengthening sales times.

The overall result is that the market is swamped with properties for sale, whilst the number of active buyers continues to dwindle.

A shortage down the line?

Spanish developers badly over-estimated future demand during the boom, which explains why the market is now suffering from a glut.

There were 651,427 planning approvals in 2007, down 25% from a record 865,561 approvals in 2006. That year Spain was building more homes than the UK, France, and Germany combined.

But housing starts have now collapsed, which means that looking further down the pipeline, say 3 to 5 years, there may be a shortage of new homes.

According to the Ministry of Development, planning approvals for residential homes fell by 60% to 247,446 between January and November 2008. Blocks of flats fell the most, by 62% to 197,023 flats, compared to a 47% drop in detached housing, to 50,417 houses.

Planning approvals in November fell by 65% to 15,377, the lowest monthly figure for 2 decades.

In Alicante Province (Costa Blanca), where holiday homes dominate the market, planning approvals fell by 74% in 2008, and by 85% if compared to 2004. There were just 960 housing starts in the last quarter, compared to a quarterly average of 13,000 in 2004.

The collapse in sales and the credit crunch will continue to push down housing starts in 2009.

Local Property Markets

Here is what property professionals working on the frontline have to say about the local market in a selection of areas popular with foreign buyers.

COSTA DEL SOL
According to Michael Moon, of the eponymous estate agency (www.michael-moon.com):

  • Prices are down 30% to 40% from the peak, and may have even undershot.
  • Prices are down due to an increased realism taking hold amongst vendors, though there is still a lot of over-priced property on the market.
  • Buyers are saying that, if the price is right, property is the best investment, better than stocks or bank accounts.
  • There are still buyers, but only if the price is right. Buyers are now mainly lifestyle buyers looking for a great deal.
  • There is a lot of distress in the market, especially amongst the British, who are under pressure thanks to the weak pound, amongst other things.
  • British vendors are offering the best deals.
  • The British aren’t buying at the moment, but other Europeans have moved in to replace some of the lost demand. The British will be back when the Pound improves, as their love of Spain has not disappeared.
  • Prime location like the beach, or close to town centres, and other traditionally desirable locations, is limited and always in demand.
  • What is not selling anymore is what Moon describes as “cynical projects” in terrible locations, for example up a hillside overlooking the motorway, that were built on the basis that “there is always some idiot who will buy.”
  • Vendors who bought more than 7 years ago still have margin to negotiate and make a profit.
  • You can now buy attractive 2-bed flats for around 120,000 Euros, down for 200,000 Euros at the peak of the market.
  • “2008 was better than 2007, and 2009 will be better than 2008,” says Moon. “We had more enquiries and offers than we expected in January.”

COSTA BLANCA
According to Colin Scriven of Hamiltons of London (www.hamiltonsoflondon.co.uk):

  • Prices fell by 20% last year, and he expects them to fall another 25% this year. “But I expect the market to bottom by the end of the year,” says Scriven.
  • Business is brisk, mainly dealing with investors looking for a bargain as a medium to long-term investment, to rent out, and as part of a pension plan.
  • There are also still some British buyers around who want to relocate to Spain and know that now is the time to buy.
  • Buyers from the Eurozone, such as the Dutch and the French, are active, but not the Spanish. Nevertheless, demand is significantly down on previous years.
  • “We are heading back to the era of cheap holiday homes in Spain, and the only things that are selling right now are bargains”, says Scriven.
  • The bargains are coming from British vendors in distress who have to return home.
  • Genuine bargains are selling fast.
  • All vendors are losing money unless they bought more than 6 years ago.
  • Flats are selling for 55,000 Euros, down from 100,000 Euros.
  • Newly built flats in Denia are selling for 120,000 Euros, down from 220,000 Euros at the peak.
  • Villa prices in Javea are dropping fast, though prices are more stable in Moraira. A fairly new 3-bed villa with a pool can now be had for 220,000 Euros, down from 280,000 Euros. Further inland, a villa with similar features can be had for 170,000 Euros.
  • You can find whole blocks of flats unsold and empty, even within 500 metres from the beach. There will be a glut of flats for years to come.
  • “It’s very hard to selling anything above 500,000 Euros right now,” says Scriven.

COSTA BRAVA
According to Tom Maidment of Lucas Fox (www.lucasfox.com):

  • “There is a bit of a standoff between buyers and vendors,” says Maidment. “Buyers are all looking for a bargain, for discounts of 30% to 40%, but many vendors are still sticking to their guns.”
  • When prices do come down, properties sell for from 15% to 20% cheaper than 12 months ago.
  • “We sold a property last week when the vendor dropped the price by 30%. At that price there was plenty of interest.”
  • There are few British buyers around, but British vendors are in hot demand. “They can drop their price more thanks to the weak Pound,” explains Maidment.
  • Active buyers now come from the Eurozone and, in parts of the Costa Brava, from Russia.
  • “Buyers are looking for a holiday home in beautiful area, which is what Costa Brava does best,” says Maidment.
  • “Our sales are mostly villas in the Begur area for between 500,000 and 750,000 Euros,” says Maidment. “Not much is selling above 1 million Euros.”
  • Buyers today are picky, and they won’t be rushed.

MALLORCA
According to local agent Martie Quick:

  • Demand has fallen significantly, particularly the British. The market is not dead, however, and there are still European buyers around.
  • The Germans are now back up to 50% of the market, after several years of playing second fiddle to British buyers. “Germans are canny and cautious buyers,” says Quick, and they like to see good quality build.
  • The circumstances of the vendor are key to what will sell, and British vendors are now the most sought after. “Owners are now more important to us than properties,” explains Quick, who is looking for serious vendors prepared to be realistic about prices. “If we’ve got people who need to sell, we have buyers who will come to buy.”
  • When prices come down 30 to 35%, buyers move fast, often in just 48 hours.
  • Prices at the lower end of the market started falling at the beginning of 2008, and asking prices are down 10-15% in the last 6 months alone. Sales prices are down 20-25% in the last 12 months.
  • Prices for high-end property only stated falling at the end of 2008, after the collapse of Lehman Brothers. Demand for high end property has slowed right down.
  • The action is at the cheaper end. “Buyers who were going to spend 1 to 1.5 million Euros are now spending 400,000 Euros,” explains Quick. “But that gets them a piece of Mallorca, a base from which they can still go hiking in the mountains, or go to the beach, or enjoy the Old Town of Palma.”
  • You can now buy, for example, a 2-bed, 90m2 flat in the South West of the island with marina or sea views and parking for 250,000 Euros, down from 300,000 to 350,000 Euros.
  • Or you can get a 3-bed semi on a golf course for 470,000 to 480,000, down from 650,000 Euros.
  • But be warned, there is still a lot of property on the market at silly prices. Not all vendors are desperate to sell.
  • Plots are offering the biggest discounts.
  • “January was a good month,” says Quick. “Considerably busier than last year.”

MURCIA
According to Gordon Turnbull of Blue Med Spanish Properties (www.bluemed.net):

  • The market action is now with Spanish buyers and British vendors. “In the boom years the market was about British buyers and high prices, now it is all about Spanish buyers and low prices,” explains Turnbull, who says that lots of sales fell through last year because banks lowered their valuations and loan-to-value ratios .
  • The only British buyers still around are those who already have Euros, for example those changing homes in Spain. There are still some Irish buyers around, but they only after real bargains.
  • British vendors are key to the market because they are the only ones offering prices that get buyers excited. “Many British vendors are selling at a loss, but with the weak Pound they do better out of the exchange rate,” says Turnbull.
  • “For example, one British vendor is selling a 4-bed, semi-detached bungalow on a plot of 250m2, 100 metres from the beach, for 180,000 Euros, down from an asking price of 265,000 Euros,” explains Turnbull. “The vendor bought 4 years ago paying 155,000 Pounds, which back then was worth 220,000 Euros, and then spent more putting in aircon and a landscaped garden. He is going to lose a bit of money, but thanks to the exchange rate it’s not too bad.”
  • “Another example: A British vendor bought off-plan 4 years ago for 134,000 Euros before taxes,” says Turnbull. “He spent money adding aircon and furniture, and then sold before Christmas for 85,000 Euros.”
  • Spanish vendors are reluctant to drop their prices.
  • Buyers are now getting the best value in 5 years, but only buying what they can see and touch, nothing off-plan.
  • Many British buyers made bad investments during the boom. “A whole block of flats down by the beach was sold to British buyers, all using 100% mortgages and over-valuations, which meant no money down,” explains Turnbull. “The flats were very over-priced, the agents and developer made huge commissions, and the British buyers, who took on big mortgages, are now in negative equity.”
  • Demand for inland golf projects in Murcia had retreated with British buyers. Spanish buyers are not particularly interested in this product; they prefer to be near the beach, and don’t like the cost. “A golf development is an expensive place to own property, what with community fees and maintenance costs,” explains Turnbull. “And many of the golf developments have been very densely built, which turns off everyone but holiday home buyers. And let’s face it, some of them were only built where they are because the land was cheap.”
  • “The asking price for a resale, fully furnished, 3-bed, frontline golf villa on Mosa Trajectum is down from 550,000 Euros to 300,000 Euros,” says Turnbull. “And Mosa Trajectum has the advantage of being just about close enough to Murcia City to attract Spanish buyers looking for a principal home.”
  • Prices in Murcia City fell by 15% to 20% in 2008.
  • Prices on the coast are down 30% in 12 months. For example a typical 2-bed flat with parking, walking distance to the beach, is down from 180,000 Euros to 120,000 Euros.
  • Prices will continue to fall in 2009. There may be an improvement in some segments in 2010.

BARCELONA
According to Alex Vaughan, of Lucas Fox (www.lucasfox.com):

  • There is a lot of interest, viewings, and offers, mainly from international buyers.
  • Even so, there is a gulf between what buyers are prepared to pay and what vendors want. “The key to success is to find the right vendor,” explains Vaughan.
  • Where there are sales, they tend to be at prices 15% to 30% below the early-2007 peak.
  • Some vendors are in distress, and in these cases properties are selling for levels last seen back in 2001.
  • “People who bought 5 or more years ago can still turn a profit if they sell today,” says Vaughan.

Forecasts

According to BBVA, a Spanish bank, property prices will fall 5% in 2009, and 10% in 2010. Between 2009 and 2011 the bank forecasts that prices will fall 25% in real terms.

Foreign banks such as UBS and Credit Suisse forecasts that prices will fall by 30% before the market turns around.

My best guess is an average 20% decline in sales prices on the coast in 2009. Note that this is an average forecast. Some properties – the most sought after in good locations – will do much better, and some will do worse.

Conclusion

During the boom Spanish property prices were fuelled by a virulent mix of cheap credit and speculation, which inflated a bubble.

The credit crunch triggered by the US subprime mortgage meltdown put an end to that, and the bubble has now burst (it was going to burst one day anyway).

But the hangover from the credit binge is a mammoth housing glut, especially of second homes on the coast, and frightening levels of mortgage debt, which means lots of negative equity as house prices fall.

Given the extraordinary nature of the financial crisis and subsequent deleveraging process, this may turn out to be anything but an ordinary housing bust. It could get a whole lot worse.

At the very least, property values now have to return to (or under-shoot) their long-term affordability level of 4 times average disposable household income, down from the recent peak of 7 times income.

Prices for holiday homes may fall even further. After all, who really needs them?

Yet many vendors are still in denial, and continue to ask silly prices, even though they don’t sell. That means that average asking prices are a poor guide to property values. There is a gulf between what many vendors are asking, and what properties are actually selling for.

But, thanks to British vendors in distress and the weak pound, there is now a reasonable choice of properties coming onto the market at sensible prices. With their have-to-sell discounts, distressed British vendors are driving the market in coastal and inland areas where foreigners tend to buy.

As a result, some genuine bargains can now be found, though potential buyers will need to do their homework to find them. You can rest assured that unscrupulous types are now busy trying to sell overpriced ‘bargains’.

Despite a recent fall in Euribor, mortgage default rates are expected to surge in 2009. This will create a big headache for mortgage lenders, and it remains to be seen how they will deal with it. It could lead to a surge of discounted properties on the market.

If so, we might soon see some mouth-watering opportunities for buyers, and, at the very least, it should be possible to find good value in Spanish property over the next year or two.

But be warned, some badly developed areas have no future at any price, and there are still plenty of pitfalls to buying property in Spain. Also, there is more to many of the “opportunities” than meets the eye. As always, stick to good locations and the best new developments.

Appendix

Two videos to give you an idea of how some parts of Spain were developed during the madness of the construction boom. One video shows Marina D’Or, a development on the Costa Azahar, and the other Soto de Henares, an urbanisation in Torrejón de Ardoz, near Madrid.

Marina D’Or

Torrejón de Ardoz

Comments

comments

0 thoughts on “Spanish Property Market Report 2008/2009”

  1. carlomagno

    “2008 was better than 2007, and 2009 will be better than 2008,” says Moon. “We had more enquiries and offers than we expected in January.”

    Seriously? Costa del Sol (Málaga) remains one of the most overpriced areas despite recent the recent fall in prices, unemployment in Spain is going through the roof (so I doubt domestic demand is going to improve), Spanish banks are in dire straits due to rising delinquencies and loan losses (so credit will become increasingly difficult to obtain), most of Europe is in recession (so I doubt that foreign buyers will provide much of a boost to demand), and the market is supposed to be up? Is Mr. Moon’s assessment credible (maybe his expectations were particularly low) or is he talking his book?

  2. carlomagno

    As to the inventory overhang, the estimate that this will take 3 years to clear is crucially based on the current sales rate. But this will likely fall further, so the “years of supply” metric will most likely rise.

    More generally, I find the argument that Spain could soon experience a housing shortage in a few years implausible, unless you assume a quick recovery in demand or at least a stabilisation at current levels (see above). I rather think we are seeing a lasting structural change that will depress demand for years, partly due to much scarcer credit availability.

  3. polaris-world

    This is a good assessment at the micro level of what is happening in the Spanish property market. As a comparison, for those old enough to remember, the property crisis of 1991 in the UK market had similar dire projections. For anybody who lived through the repossessions at the time, 12%++ interest rates and negative equity, arguably worse than it is now. We forget quickly.

    … And we did forget. By 1993 nobody was talking about property. Press included. Old news, up or down. By 1995 prices were steadily rising. By 2007 a 200/300% rise..… well… the rest is history. And here we are.

    Is it any different this time? Yes. Through massive government and central bank response. Billions upon billions pumped in by central banks. Interest rates heading to zero. Yet every single analyst and journalist that never predicted this coming… is now predicting it never ending.

    Analysts and journalists follow the herd and trend. When we went into this, as it got deeper faster than expected the key word was “unexpected”. Now early in 2009 the key word is again “unexpected”…unexpected US housing data (Jan 2009), unexpected rise in UK House Prices (Halifax Jan 2009), unexpected rise in US retail sales (January), unexpected rise in RICS housing interest (January). Check it out. Every single strand of positive news in January 2009 was.… “unexpected”.

    Watch out for more “unexpected” news in the next twelve months as the analysts adapt and the news becomes “in line” with expectations. Watch out for 1993 – 1995.

    Even so, that’s a financial perspective.

    Life’s too short. The culture, lifestyle and climate in Spain remain the same. If you feel the need, then get on with your life anyway.

    Paul Williams
    http://www.polarisworld.info

  4. carlomagno

    Paul, your optimist is touching! You do remember that last time around UK house prices (in real, infation adjusted terms) did not recover to pre-crisis levels until early in 2002 (based on Nationwide data)? “Watch out for 1993-1995” indeed: UK real house prices were lower at the end of 1995 than at the begining of 1993! If you don’t believe me, download the data from the Nationwide’s website.

    As to the Halifax January HPI, let me quote Martin Ellis, the Halifax’s housing economist:

    “There was a 1.9% increase in average UK house prices in January, offsetting December’s 1.6% decline. Prices in the three months to January compared to the preceding three months, which provides a better indicator of the underlying trend, were 5.1% lower.

    It is always important not to place too much weight on any one month’s figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn. For example, prices fell for seven successive months in 1989 but subsequently increased in three of the first ten months in 1990 even though the overall trend in prices was downwards.” (Emphasis added.)

    Please keep your eye on the trend, on housing market fundamentals (such as the monumental inventory overhang in Spain, which will get a lot worse before it gets better, keeping downwards pressure on prices for the foreseeable future) and on the overall macroeconomic context – the Spanish government is currently projecting the longest recession in living memory (which points to severely rising unemployment, in Spain as in the rest of Europe). These factors should tell you that housing prices have nowhere to go but down for the foreseeable future.

    BTW, interest rates are neither here nor there at this stage: in the current context, the normal monetary transmission mechanism is inoperative and the availability of credit plays a more important role than its price. And all the available statistics suggest that credit is getting scarcer as banks adjust their balance sheets and tighten underwriting standards. If you want to see what credit availability is doing in Spain, see the following from the Banc of Spain: http://www.bde.es/infoest/e0807.pdf (this is for credit to households, up to last November; I doubt the trend has been reversed since then).

    IMO Spain’s housing bust has only just got started and has much further to go. I realise this is not good news for your profession, but that is another matter.

  5. Ashcan

    I have to agree with the above comments, this apparent depression in the Spanish property market has happened before and anyway was to my mind inevitable after the artificial inflation resulting from the Peseta/€uro transition and a lot of frankly sharp practice by estate agents and developers generally. As for the credit crunch, well if people would only listen to advice and buy their properties through a UK limited company then they can sell their company with mortgage intact very easily indeed and also without the 7% resale purchase tax and with no spanish capital gains tax either.
    Rex Ashcroft
    Wealth Protection International
    info@wealthprotect.co.uk

  6. carlomagno

    this apparent depression in the Spanish property market has happened before

    Not really. During the last downturn (early 90s), national nominal house prices hardly dropped at all in Spain, while we are currently seeing quite a severe fall in nominal prices, a process that has much further to go due to adverse housing market fundamentals and the deteriorating macroeconomic context. This downturn will be much worse than the last one.

    Also, during the last downturn, housing starts fell one third from a peak of 283.300 in 1989 to a trough of 189.100 in 1993. So far housing starts have dropped almost two thirds from 798.700 at the peak in 2006 to 285.100 in 2008. (This all based on data from Sociedad de Tasacion. You can download the data at http://web.st-tasacion.es/html/menu6.php). Starts also have further to fall, perhaps to as low as 200.000 this year (essential to arrest the growth in the unsold housing inventory). So the construction industry is going through a much more severe shakeout.

  7. carlomagno

    OMG, I was being optimistic! Mark just posted a new article stating that “The G-14 forecasts 150,000 housing starts in 2009”. If confirmed, this would be a start towards stabilising the inventory overhang.

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