- July 23, 2009 at 9:59 am #55123
Article from MoneyMorning.
Spain’s house price crash is worse than it looks
Right now there’s clearly some ‘statistical noise’ in the housing market. After a sharp fall, prices stabilise for a while, which can give the impression there’s a pick up underway. But anyone feeling like buying a house right now should take a look at what’s happening in Spain.
Why? On the surface, the Spanish property scene doesn’t look too bad. Ministry of Housing figures show just an 8.5% drop over the last 12 months from the mid-2008 peak. That’s not so bad, given that Spanish house prices more than doubled over the previous 10 years. But the official stats are a long way from telling the whole tale.
The independent house price index compiler Tinsa reckons average prices are 13% off the top, and down 18% on the coast. But the word from developers and estate agents is of falls of up to 30%.
When you look at the earlier building boom, this is no surprise. Between 2001 and 2007 Spain went mad. The country put up 29% of new EU homes despite having just 9% of the population. The end result has been a glut of 1.5m unsold homes.
That sounds like a recipe for disaster – which of course, it is. Now that the housing bubble has burst, home sales have plunged by more than a third in the 12 months to May. Shedloads of developers have gone bust, owing billions to the banks. And said banks are now being forced into taking on rows of empty houses no one else wants.
Spain’s new boom industry – bank robbery
Hence the next problem. With the number of properties for rent soaring by 55% over the past two years to 3.3m, the highest since Ministry of Housing data started, rents in cities have begun dropping for the first time in seven years – by up to 8% so far. “Those who need to sell but can’t are being forced to lease” their old house, Fernando Encinar at Idealista.com, Spain’s largest property website, tells Bloomberg. “We haven’t seen this number of properties for rent since the 1950s”.
Rents can only fall further, which will depress prices even more. The jobless rate, at 19%, is the highest in the EU and is set to climb even higher, which will only add more forced sellers.
And here’s the extra scary bit – the recession is resulting in a very definite rise in crime. Bank robberies are up by 20% within the last two years. “People are committing offences through necessity, first-time offenders who can no longer continue to maintain their lifestyles and so turn to crime”, says the head of criminology at Camilo Jose Cela University, Francisco Perez Alba, to the New York Times. As Jose Manuel Murcia of the Workers Commission union federation puts it, “Banks are denying credit. People can’t pay their mortgages. There’s unemployment, hunger – and there’s money in the banks… so it’s logical to rob a bank
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