Wednesday, November 14, 2007

The boy in the bubble

An interesting article about the Spanish property bubble that is not all doom and gloom. Also reiterates Spain's high ranking holiday destination status. It's the best weather in Europe and nothing is going to change that. For more on Spanish mortgages go to

The property bubble and its subsequent deflation is not a crisis limited to the United States; many countries now teeter on the brink of a market collapse. In Spain, a decade-long boom—which led the country to construct more new houses in 2006 than France, Germany and the United Kingdom combined—has begun a reversal and given many homebuyers and sellers cause for alarm.
Home prices have risen more than 200 percent during the ten-year bubble marketThe price of Spanish homes has risen more than 200 percent during the past 10 years, and “[a]t the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca,” according to the Daily Telegraph. Low mortgage rates offset the rising costs of home purchases and now approximately 95 percent of Spanish homeowners have adjustable rate mortgages, according to the Wall Street Journal.

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"Last year, Spanish families on average paid six times their annual salary to buy a home, compared with 3½ times salary in the late 1990s, according to the Bank of Spain, the central bank,” the Wall Street Journal reported.
However, the Spanish property bubble has popped. In the second quarter of 2007, the rise of property prices was below the rate of inflation for the first time in 10 years. So far this year, 300 of the Costa Blanca’s real estate offices have closed their doors, according to the Daily Telegraph. Spanish homeowners, unable or unwilling to sell, must watch in horror as interest rates rise beyond their reach.

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“In the third quarter, 22 percent of banks surveyed by the European Central Bank reported that they were tightening standards for mortgages, with 10 percent easing and the rest unchanged,” according to the Wall Street Journal.
The situation in Spain could be either detrimental or beneficial to investors involved with Spanish property. Those who own real estate in Spain could see their property values falling as the market struggles. Speculative investors buying and flipping properties stand to get hit especially hard and will most likely look to offload properties at a loss.
Still an attractive tourist destination, Spain remains an excellent location to own rental propertiesFor investors who do not own Spanish property, but are interested in the possibility, the country’s market could offer opportunities. In the near future it may be possible for investors to secure Spanish real estate for lower prices because of the sagging market and anxious sellers. However, it is unlikely that the market has bottomed out yet, so investors looking to buy should exercise caution. Those with long-term plans or those buying for personal use will find this market more attractive than those interested in the short term.

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Spain is one of the most popular vacation spots in the world among Americans; it was ranked ninth in 2007 and has been among the top 15 international destinations since 1998, according to a Harris Poll released July 2. Spain will likely remain a popular destination in the future, so it is an excellent location for a second home or vacation rental property in spite of its deflated real estate bubble.

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