Tuesday, Jul 17, 2007
Video of the looming Spanish bust
BBC News: Spanish housing market fears
The Spanish economy will be devastated.
20-40% of the government's income comes from housing related taxes.
The spanish housing minister won't comment at all.
How many Brits have remortgaged back home to buy in Spain
Germany's economy is going from strength to strength and will see even more EUR rate rises.
It is a catastrophe
Posted by sold 2 rent 1 @ 11:51 AM (201 views) Add Comment
13 Comments
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1. sovietuk said...
"Germany's economy is going from strength to strength and will see even more EUR rate rises"
Isn't this because Germany has an industry that makes things and exports them whereas some other economies (we won't mention any names :-) ) are just bulit on fictitious asset equity.
2. uncle tom said...
The construction industry in Spain has become a fantastically large part of the economy - building many times the number of houses needed to service the indigenous population, and far more than the number required to house those immigrants who can afford the prices.
A slowdown in construction will cripple the Spanish economy, as construction workers, building material suppliers and everyone who services those industries loses business - but if contruction is to continue at it's present level - and Spain does have a lot of sunshine and a lot of poor quality land (for anything other than houses) - then prices must correct to a level that is close to unit construction cost, so that rapid immigration continues.
For the Spaniards it's the devil or the deep blue - if prices stay high, contruction slows, they go into recession, and many people cannot afford their mortgage payments. If prices collapse, many people go into negative equity, but the construction industry keeps going, the economy holds up and people can still afford the mortgage payments.
The latter option would not be without upsets, but is by far the better way for the Spanish. It would also result in a much greater number of Brits cashing in their houses and retiring to Spain, freeing up a lot of UK property in the process.
3. wage slave said...
It looks to me like the spanish property market is on the edge of the abyss.
When things are rock bottom then I'll probably see if I can pick up somewhere cheap to live while I ride out the UK recession / depression, assuming my job's gone down the pan with everyone else's.
4. tyrellcorporation said...
UT how about this scenario:
If prices stay high, contruction slows, they go into recession, and many people cannot afford their mortgage payments. If prices collapse, many people go into negative equity, confidence nosedives, construction all but stops, they go into recession...
I don't really share your more optimistic 'latter option'.
5. doomwatch said...
Fantastic piece. It just goes to show how governments are now so reliant on property inflation to keep their ecomonies afloat. Scary.
No cover ups here though; the biggest socio-economic proplem to hit the UK is discussed every week on question time. NOT.
He had to be called Pedo didn't he :)
6. uncle tom said...
Tyrell,
As I said, a price crash would not be without upsets, but unlike the US and UK, I don't think the Spanish have built up such an economic dependence on equity withdrawal, which will serve to moderate the downside effects of a price crash. But loss of confidence and the likely insolvency of some construction companies would create problems that the Spanish government would have to tackle quickly and assertively.
Would they? - I don't know!
7. sold 2 rent 1 said...
UT
"If prices collapse, many people go into negative equity, but the construction industry keeps going, the economy holds up and people can still afford the mortgage payments."
As with most HPCs it will last 4-8 years. The construction industry couldn't keep going. Most of the immigrants work in construction and they will find themselves out of work. The flow of immigrants wil grind to a halt.
UK owners will sell and not buy until the bottom has hit in a decade or so.
Also, what about the debt levels and the massive trade defecit?
The best case scenario is severe recession.
Don't mention the D word.
8. sold 2 rent 1 said...
And there is more,
If the rest of Europe (excl Germany) go into recession from 2008/9 then travel will take a hammering.
Spain will surely get hit with both barrels - a construction and tourism downturn. At a guess this must be close to 50% of the economy.
Being trapped in the euro they would have to rely on high unemployment to keep wages down and stay competitive.
A housing boom of this scale has consequences for a decade or more - lower domestic consumption for 10-20 years for one.
Whilst a HPC may solve the problem for future FTBs, the debt still remains for the rest of the home-owners. High unemployment will make many owners hand in their keys to the bank. I cannot see anything other than a full-on banking crisis that a broke government can do little to save.
Euro exit is a near certaintly.
9. dbnazz1 said...
I think a lot of ex pets in Spain are going to see the value of there property drop like a lead balloon. the Spanish economic growth has largely been built offf the back of construction. this price fall will have dire consequences for the Spanish economy. Interestingly, as different parts of the EU will be experiencing different economic problems/conditions it will follow that different parts of the EU will require different central bank action to slove there problems. As a result whatever action the EU Central Bank takes, this will benefit some countries but will crucify others.
10. tyrellcorporation said...
'One-size-fits-all' monetary policy was always going to fail - what amazes me is that it's lasted this long!
11. mrmickey said...
Yes tyrell the EU has yet to be stress tested in an economic crisis but it soon will be and when it does it will end up on it's roof in the fast lane surrounded by the emergency services dragging the bodies out and hosing down the remains.
12. Debtjam said...
According to last nights relocation dislocation delflation, Kirstie reckons 500000 brits own property in Spain. Negative equity in two counties is going to hurt!
13. Cheekie Charlie said...
If globalisation of cheap credit pushed HPI and supply shortages across borders then not only will this happen in reverse but surely Spain's over supply of houses is ours too!