In a recent article entitled ‘Spain’s Orderly Home-Price Drop Shows Signs of a Faster Decline’ the Wall Street Journal wonders whether a collapse in Spanish house prices might not be just around the corner.
“Most outside observers have been waiting for months, or even years, for a Spanish housing-market collapse. So far, they’ve been disappointed. But the gloom-mongers’ moment could be coming soon,” says the article.
Citing a recent report on the Spanish housing market by the investment bank Goldman Sachs, the WSJ says that Spain’s massive housing overhang, estimated to reach 850,000 properties by the end of this year, and 1.1 million properties a year later, could be a bigger threat to the Spanish property market than the credit crunch.
Noting that real demand for housing in Spain is normally around 400,000 properties a year, the article points out that Spain’s housing overhang will be a drag on the market that will take years to clear.
To deal with the problem, and reduce housing inventories quickly developers are urged to drop their prices. The WSJ observes that liquidity problems appear to be forcing a growing number of developers to do just that, but worries that this could turn into a trend that converts an orderly home-price drop into a rout.
Goldman Sachs and the WSJ aren’t the only ones worrying about the Spanish property overhang’s impact on the market. The investment bank Merryl Lynch has published a report highlighting the problem of oversupply at a time when both national and foreign demand has seized up. Merryl Lynch argues that the glut of property in Spain is enough to cover 3 years worth of demand.
Oversupply is not evenly spread around the country. The worst affected areas are Andalucia, Castilla La Mancha, Murcia, The Canaries, Aragon, and La Rioja, says the report.
Merryl Lynch also argues that immigrants might not ride to the rescue of the Spanish property market, as some suggest. Given that a significant number of immigrants work in construction, their demand for housing is likely to fall with their jobs.