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Housing Bubbles: Not only in the US

Written by A Forex View From Afar on Thursday, March 27, 2008

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The drop in the construction area of the economy is not only being felt in the US; Spain also suffers from the ill right now. The beautiful country, which acts as a magnet for tourists around the world, is now starting to experience the downturn of a housing bubble

Completed house sales for January dropped 27 per cent year-on-year, according to the National Statistics Institute (INE), while total lending to home-buyers fell almost 28 per cent to €13.4bn ($21bn, £10.5bn). The value of the average mortgage was down 3 per cent, to €142,794, despite higher financing costs.

Even if actual prices did not drop too much (measured in mortgage cost), the sale of houses dropped at a very fast pace.

It should be said that from 1997 to 2005 prices grew at an impressive rate, over 247%, while 20% of the available houses were unoccupied. This clearly shows speculative interest was at the highest peak possible, creating a bubble.

The question is; where was the government control during this time? Oh, I forget, these kinds of bubbles are “good” (short-term speaking) for the economy, creating a welfare state for the population. Probably the government prolonged this bubble, after the election, to now let others handle it. Does all this ring a bell? It’s the current case of US, and the Japan of the 90s which until now still has not recovered.

The interesting point is that US and Spain reached their housing peaks the same time, in 2005. Now let’s see who gets the first things rolling to address the same situation.

The strong Euro probably will not attract too many foreign investors anytime soon. Or maybe the Spanish housing market is in a reverse correlation with the Euro; a strong Euro = a weak housing market.

FT: Spain’s property market headed for a fall

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