An interesting question is: Why haven’t prices collapsed in those areas where there is a massive oversupply of property, much of it unattractive and in subprime locations? Prices of similar properties in the US have fallen hard and quickly, but not in Spain.

As one person comments in the forum, “I’ve been looking at buying a property in the Canary’s now for over 12 months now and have not witnessed any crash. Developers still want the original price for properties "no room for negotiation". Private sellers are refusing to drop the price on properties that have been on the market for some time, and estate agents continue to put properties on the market based on the values apportioned to properties that are not selling.” So if the market is so bad, why aren’t prices tumbling?

These are the reasons that I can come up with:

First of all, foreclosures in Spain take a long time. It appears that many mortgage lenders take a year or more to respond to mortgage delinquencies, after which the repossession process can add on another 6 months or more. This delays the time it takes for repossessions to come on to the market, so a slump in the market does not translate quickly into distressed prices.

Secondly, many investors have just walked away from their deposits (some managing to claw back part of their money), leaving their properties to developers who put them back on the market at list prices. Developers are loath to drop prices, and until now many could afford not to. This may now change, as developers are caught between falling operating cash flows, and rising financial costs, with no access to new borrowing.

Thirdly, real bargains to date have often been snaffled up by insiders such as lawyers, notaries, bank managers, and estate agents, so you rarely see them on the market.

And lastly, many vendors have a mortgage of 70% or more, so they can’t drop prices by more than 30% without going into negative equity. Walking away from a mortgage is an option that used to work in the past, but there is an increasing risk that Spanish lenders will pursue their delinquent foreign clients across borders. So a British investor who defaults on a mortgage in Spain may be pursued in the UK, which gives those vendors who can afford to a good reason to try and tough out the market.

But there must come a point when the market can’t take the strain any longer. So maybe prices of 2-bed box apartments in the most over-developed areas will start to fall big time in 2008. Perhaps. But then again, why would anyone want to buy them at any price?