Spanish home prices are overvalued by 33%

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This topic contains 13 replies, has 6 voices, and was last updated by Profile photo of Anonymous Anonymous 4 years, 9 months ago.

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  • #56523
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    Anonymous
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    According to a new study by Deutsche Bank, summarised in this article
    http://www.businessinsider.com/the-most-overpriced-housing-markets-in-the-developed-world-2012-2?op=1

    The problem with this study, as usual, is DB uses official house price data, which is highly misleading in the case of Spain. Real Spanish property prices are much better value than this study suggests.

    The same cannot be said of UK house prices, overvalued by 34%. UK house price data is much more reliable.

  • #107918
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    Anonymous
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    Price/Rent in Sweden is totally irrelevant since rents are controlled and kept down by the goverment so it’s has no bearing. It’s a stupid system that makes people stand in line 10-20 years for a rental apartment.

    As Mark said it’s totally useless if you use bad data for the study. We all know how “faulty” the data is comming from Spain.

  • #107922
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    Anonymous
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    Meaningless figures, if pretty pictures.

    The reason the Dutch market seems so overvalued, particularly in comparison to Germany which has a broadly similar economy, is due to the tax system here. Basically house purchasers get full tax relief on any mortgage interest. In my case my interest only mortgage is 950 eur per month. I get half of that back from the tax man.

    For that reason alone properties appear overvalued. There has been no boom or bust here. The most prices went up in the noughties was 5%. The biggest drop since the crisis began has been under 2%.

  • #107925
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    Anonymous
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    In what concerns prices, the only country that could be compared to Spain is USA where they also way overbuilt in the boom areas.

    As Mark inserted a relevant graph in the News and Views sections, the prices in USA are in average back to the 1998 prices and of course overshot downwards in some regions like Florida, Nevada, etc.

    There is no reason to not expect that Spanish property prices will not go to 1998 prices which would mean at least a 33% discount from what they are now in February 2012. And some overbuilt area property will probably need to be almost given away at the end.
    Of course, prime property or property in desirable areas will hold the value better, same as in USA San Francisco, New York or Washington DC prices held much better than the Las Vegas ones.

  • #107926
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    Anonymous
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    But can you compare to the US when you can just hand the property back to the bank? It feels like something that will make the downturn overshoot like crazy.

    But I really like the idea of forcing the lenders to take responsibility for what they lend out. No one except the banks really make money on rising prices on real estate.

  • #107928
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    Anonymous
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    Personally I think the best comparison to Spain is Ireland. They had very similar bubbles.

    Ireland has now (sort of) reached equilibrium after average falls of around 50%.

  • #107929
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    @Ardun wrote:

    But can you compare to the US when you can just hand the property back to the bank? It feels like something that will make the downturn overshoot like crazy.

    But I really like the idea of forcing the lenders to take responsibility for what they lend out. No one except the banks really make money on rising prices on real estate.

    There are millions of foreigners who came to Spain during the constructions boom, got some decent salaries, were lured into buying very expensive properties, lost jobs after 2007, cannot pay the mortgages and are now moving back to their own countries or to better job markets.
    They are giving the keys back to the banks and have no asset that the banks might chase.

    The downturn overshoot will be crazy, it is amazing how the prices of undesirable properties are so high after 5 year of downturn. I do not understand at all how can the banks stay on so many properties with so high prices and not make any attempt to get rid of them…

  • #107930
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    @brianc_li wrote:

    Personally I think the best comparison to Spain is Ireland. They had very similar bubbles.

    Ireland has now (sort of) reached equilibrium after average falls of around 50%.

    I do not think that Ireland has 2 million unoccupied properties. Ireland might be like Liverpool with too many overvalued downtown properties.
    But not at the level of huge areas with uninhabited resorts like in Spain.

  • #107931
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    The comparison between Spain & Ireland is fair. One of the difference to my knowledge is that Ireland has shifted their stock at Auctions etc . Whilst the Bank in Spain are digging in and being as Ostrich.

  • #107932
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    Flosmichel,

    No, they don’t have a million unsold properties but the population is less than 10% that of Spain. I would not at all be surprised if, at the peak of the crisis, they had 100k+ unsold properties.

    As Shakeel has pointed out, there are differences in the markets. All I am saying is that the bubbles bear striking similarities.

  • #107936
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    @flosmichael wrote:

    @Ardun wrote:
    But can you compare to the US when you can just hand the property back to the bank? It feels like something that will make the downturn overshoot like crazy.

    But I really like the idea of forcing the lenders to take responsibility for what they lend out. No one except the banks really make money on rising prices on real estate.

    There are millions of foreigners who came to Spain during the constructions boom, got some decent salaries, were lured into buying very expensive properties, lost jobs after 2007, cannot pay the mortgages and are now moving back to their own countries or to better job markets.
    They are giving the keys back to the banks and have no asset that the banks might chase.

    The downturn overshoot will be crazy, it is amazing how the prices of undesirable properties are so high after 5 year of downturn. I do not understand at all how can the banks stay on so many properties with so high prices and not make any attempt to get rid of them…

    Yes you are correct in that the foreigners bought en mass in Spain and that caused even more problems.

    The thing is that they may not chase people from latin america, USA, Russia etc but they are trying to garnish the wages for people in England for not paying back their loans from house deals in Spain but I’m not sure how it has worked out. I was suprised last year that the police in Spain actually chased my friends in Sweden for speeding tickets. That had never happened 10 years ago. It’s legally possible to chase in debts from all EU-countries from what I understand.

    Yes I totally agree with that the spanish banks have been behaving like idiots. They should auction off all properties straight away to lessen the financial burden on Spain.

  • #107937
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    “Yes you are correct in that the foreigners bought en mass in Spain and that caused even more problems.”

    The way Spain was building all & sundry in Spain believed that the whole world would come to live in Spain. i.e.there will be vast empty spaces on the Planet & we all would be living on top of another in the Spanish cities & the outback.

    Bodies connected with construction took their fee, charges etc. It was their Job or it was the function of their deparrtment. However it was not the job of Banks to go along in the same vain. The banks had to do their own due deligence, financial appraisal i.e.prudent lending. In this respect the Banks cannot shift the blame on others.

    We all know from life that nothing is forever & no curve just keeps on moving towards infinity. One sector of economy just cannot forever carry on supporting 55-60 million people for decades to come.

    A good example of this is “Dubai” where the oil reserve would not have underpinned their economy for the future, despite of having a very low population. They took action & diversified and made into a low tax economy.

  • #107938
    Profile photo of GarySFBCN
    GarySFBCN
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    But can you compare to the US when you can just hand the property back to the bank? It feels like something that will make the downturn overshoot like crazy.

    That’s a common misconception. There are a handful of states that allow on to ‘walk away’ from a mortgage (in 2008, only 12 states allowed it). But it is not a national law.

    But even in States where one must pay the mortgage, lenders do not always pursue those who walked away. Why? Because who knows who the lender really is? And those who ended up holding the mortgage would most likely have to sue whoever sold them the mortgage, which was probably bundled with hundreds of other mortgages.

    Complicated financial instruments are the root of all evil.

  • #107939
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    @garysfbcn wrote:

    But can you compare to the US when you can just hand the property back to the bank? It feels like something that will make the downturn overshoot like crazy.

    That’s a common misconception. There are a handful of states that allow on to ‘walk away’ from a mortgage (in 2008, only 12 states allowed it). But it is not a national law.

    But even in States where one must pay the mortgage, lenders do not always pursue those who walked away. Why? Because who knows who the lender really is? And those who ended up holding the mortgage would most likely have to sue whoever sold them the mortgage, which was probably bundled with hundreds of other mortgages.

    Complicated financial instruments are the root of all evil.

    Ok thanks for clearing that up.

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