The credit crunch is not to blame

Most people now accept that Spain is going into a serious property market downturn, even if the ministry of housing’s statistics are still suspiciously hunky-dory. But it winds me up how the majority of people – commentators and politicians in particular – blame the downturn on the credit crunch.

Let’s be clear about this. The credit crunch is no more to blame for Spain’s housing market problems than the immigrant labourers who have flooded into the country to help build tens of thousands of dreary blocks of flats.

Certainly, the easy credit of the last 5 years or so has fuelled Spain’s property boom, but some sort of credit tightening was inevitable and predictable. The speed and severity of the crunch might have taken people by surprise, but there was always a good chance it would end that way. Big benders are always followed by hangovers, we all know that.

The real cause of Spain’s present property market problems was a greed-driven, speculative housing boom that sucked in close to 20% of Spain’s GDP. Once the bubble was allowed to inflate, and take over so much of the Spanish economy it was doomed to burst, and the credit crunch just helped prick it.

The credit crunch, with its pesky US subprime borrowers and greedy international banks, is just a convenient scapegoat for what is essentially a homemade problem. Blame it on the credit crunch, nothing to do with me mate.

By the way, the government has just released quarterly figures on the housing market showing that average Spanish property prices rose by 4% in the last 12 months.

Much has been made of the fact that this is the first time property prices have fallen in real terms in a decade (inflation is 4.6%, so prices fell by 0.6% in real terms), but that’s missing the point. The real point is that the government’s figures are baloney, about as reliable as Zimbabwe’s ‘official’ inflation rate.

I have no doubt that prices are falling in both nominal and real terms, in some areas by up to 20% or more. Everybody I talk to – estate agents, developers, bank managers, lawyers – says prices have been stagnant or falling for some time. The claim that prices might have actually risen by 4% in the last 12 months, against a back drop of massive over-supply, plunging demand, lengthening sales times, risible rental yields, and, of course, the credit crunch, is just plain daft.