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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 is not only felt in the US, but Spain also suffers of it. The beautiful country, which acts as a magnet for tourists around the world, now starts to experience the downturn of a housing bubble

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

Even if prices didn’t 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, totaling 247%, while 20% of the available houses were unoccupied. This clearly shows speculative interest was at the highest peak possible, creating a bubble.

The problem is where was the government all this time? Oh, I forgot, 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 elections, let others handle it…Does all this ring a bell? It’s the current case of US and Japan of the 90s, which until now haven’t recovered
The interesting point is at the same time, US and Spain had reached its housing peak in 2005. Now let’s see who gets things rolling first.

Probably the strong Euro won’t attract too many foreign investors very 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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