US property prices adjusted much quicker after the bubble burst, and the market has recovered much quicker as a consequence.
The Spanish and US housing markets were in more or less the same place in 2005: House sales were growing at around 5pc per year, and prices were increasing by between 10pc and 20pc. But when the crisis struck, and the bubbles burst, the two markets went very different ways.
US vendors bite the bullet
In the US, prices fell very quickly, to -5pc in 2007, and -15pc in 2008. Transactions also fell, by close to 25pc in 2007, and 20pc in 2008, but it’s reasonable to assume that transactions would have fallen further had vendors not accepted reality and dropped their asking prices so fast.
Which is exactly what happened in Spain, as illustrated by the chart above, comparing the US and Spanish markets since 2005 (chart by the Spanish bank La Caixa). In Spain, prices were still apparently increasing in 2008, but transactions had fallen by 30pc. So prices in Spain were kept artificially high at the expense of sales.
In the US, by 2009, the market was already growing again, even though prices were still falling by 10pc. In Spain, by contrast, the market is still shrinking today, whilst prices are now falling by double digits, though not as much as they did in the US when the market bottomed out (all according to figures provided by La Caixa).
In the US today, both home sales and prices are growing by an annualised 10pc, according to the research by La Caixa. But judging by the chart above, it will be at least four more years before that happens in Spain, if at all.
By denying the crisis, and keeping prices artificially high, Spain has dragged out this housing bust for longer than necessary. It is cheaper and less painful in the long run to take the losses on the chin early on, as the US did.