April 26, 2007

Financial Times: "Spanish property boom ends in panic"

Two articles yesterday here in Europe should give those of you in the US a peek at headlines to come there... Ah, the end of a grand worldwide game of musical chairs. Textbook financial mania (always followed by the textbook panic and crash). And remember, the rush to cash can be fierce.


Pero suzanne lo investigó!!!

First this one in the Financial Times:

Spanish property boom ends in panic

Spain's overpriced property market came crashing down yesterday, with panic selling of real estate stocks signalling the end of a 10-year-old construction boom.

The sell-off dragged down related industries such as construction and banking and caused a 2.7 per cent drop in the Ibex 35 index of leading shares.

The fall also rippled through other European markets as investors worried about its knock-on effects.

And then this one in the Independent:

As Spain falters, is the world's property boom coming to an end?

Panic selling of Spanish real estate stocks this week sent shudders through property markets worldwide. As investors bet that Spain's 10-year construction boom is finally over, we take a look at global property hotspots to see who will be the next casualty.

For Brits fantasising about sipping sangria while watching the value of their Spanish holiday-home soar, the dream is over. After five years of double-digit growth, house prices rose by a relatively modest 9 per cent in 2006 and are expected to slow dramatically this year.

A constant stream of bad news has shaken foreign buyer confidence in Spanish property, while relatively high prices and competition from cheaper destinations such as Morocco and Bulgaria has drained demand. Corruption scandals linked to property deals have been rife - in Marbella, several municipal councillors are in jail awaiting trial for allegedly taking kick-backs.

22 comments:

Mark in Zurich said...

Gruezi from Zurich . . .saw that big item in the FT yesterday (made mention of it here). . .yes, the good news just keeps on coming (for HP'ers of course) looks like the Easyjet crowd is getting cold feet. . .wonder how those condos in Bulgaria, Croatia, etc. etc. will do now? Will the Brits Abroad who loose money in Spain, come back to the UK and try to sell UK investments to cover their loss in Spain??. . .interesting times. . .another 30C (80F) day here in Zurich thanks to global warming???

Anonymous said...

but but but: the HP troll says Spanish housing is where he bought last year! Spanish real estate only goes up!

JAFO said...

So Astroc's auditor found some shady dealings going on and Astroc's chairman, Banuelos, holds a press conference to say he is considering switching auditors??

Priceless! Folks, you can't make this stuff up. I don't believe I could even go out there in front of the press and keep a straight face while making statements like that under those circumstances. Nice to see that the Euros have just as much unmitigated gall as our fine American CEOs.

JAFO

Anonymous said...

>And then this one in the Independent.

So much for being Independent.

shtove said...

From England ... Yesterday in court I got possession of 6 buy-to-let apartments from a plumber. From the window of the courthouse you can see all the cranes busily building these units in the grungiest parts of the city. The buyers are still there, but they're going to have to fix a hell of a lot of kitchen sinks to finance their property empirettes. Usually it's a divorce that brings the house of cards down. This time ... no tenants.

Tsunami the Impaler said...

Fantastic!

Tulsa Time said...

Why do people always misspell "lose" (lūz)?
The word "loose" would describe baggy pants or the loose change in your pockets (Not fastened, restrained, or contained: loose bricks>. "Lose" is how one would describe the money that will be missing after buying a house and failing to flip it in July 2005! It LOSE people! LOSE (lūz), not LOOSE (lūs)!

UGH

David said...

I have been going to the Costa Blanca in Spain for years and years as my mom is from there and that is also where I met my wife whose family is from there. The Costa Blanca in Spain is one of the epicenters of the Spanish housing boom and the growth pace has been insane over the last 8 years.

I remember seeing housing block after housing block going up, being finished, and then empty. I asked my friends there why, and they said it makes more sense to pay a mortgage payment on an empty house and hold the property, than to put that same money in the bank and earn a paltry amount of interest.

I thought that was crazy at the time, but for some time my friends there were right. In Europe, where most mortgages are variable, the mortgage payments have been relatively small over the last few years. Now that rates are going up, many Spaniards are feeling the pinch. In fact, I remember when we were living there in 2004 and we had a neighbor who worked at a Spanish bank. I was talking with him about mortgage rates and he always quoted variable rates. I asked about fixed rates and he looked at me like I was crazy –and then he told me that rates don’t go up and it didn’t make sense to pay a higher rate that was fixed.

At the end of the day, there is no doubt that the housing market there has been lifted by the Ponzi/Greater Fool mentality.

As a mortgage broker here in the US, I do believe that Spanish property owners' downside risk is much less than for the homedebtors here in the US for these reasons:

1. Full-Doc Mortgages only
2. Large down-payments required. (At least 10% down, but most times 20% down.)
3. Spain is truly the "Florida of Europe." Northern Europeans are flocking there for retirement and don't plan on stopping. They can still sell their modest home in the North and buy up and still have lots of money left over.

Don’t get me wrong. I do believe that the Spanish market will correct more than most people there want to believe, but NOTHING like what lies ahead here in the US. Here, there will be hell to pay until all the housing specu-debtors get flushed out.

sweet potatoe said...

got popcorn?

Get ready for a big action show coming out of Europe.
man the Euro zone housing crash is gonna get bloody.

BTW Keith? do people in Europe really read the Financial Times?
Here in the US its viewed as a tabloid not really reliable.

Anonymous said...

Bulgaria is the place to be. It's the next hot spot for the cool crowd

Anonymous said...

I can't help but cop a special brand of "wood" off stories such as these. Headline should read:

FB's Go Global! (or)

Equity Locusts Know No Bounds!

Some time back on Patrick's we did a thread on "Just how far must one go to escape the clutches of the Bubble" (or something like that).

Evidently Spain is not near far enough. We concluded that some parts of Borneo were still "somewhat" affordable as well as rebel strong holds on the islands of Basilan and Jolo in the Philippines. Just a few shrunken heads above median. Sheesh.

DinOR

David said...

I have been going to the Costa Blanca in Spain for years and years as my mom is from there and that is also where I met my wife whose family is from there. Costa Blanca is one of the epicenters of the Spanish housing boom and the growth pace has been insane in the last 8 years.

I remember seeing housing block after housing block going up, being finished, and then empty. I asked my friends there why, and they said it makes more sense to pay a mortgage payment on an empty house and hold the property, than put that same money in the bank.

I thought that was crazy at the time, but for some time my friends there were right. In Europe, where most mortgages are variable, the mortgage payments have been relatively small over the last few years. Now that rates are going up, many Spaniards are feeling the pinch. In fact, I remember when we were living there in 2004 and we had a neighbor who worked at a Spanish bank. I was talking with him about mortgage rates and he always quoted variable rates. I asked about fixed rates and he looked at me like I was crazy –and then he told me that rates don’t go up and it didn’t make sense to pay a higher rate that was fixed.

There is no doubt that the housing market there has been lifted by the Ponzi mentality.

As a mortgage broker here in the US, I do believe that Spanish property owners' downside risk is much less than for the homedebtors here in the US for these reasons:

1. Full-Doc Mortgages only
2. Large down-payments required. At least 10% down, but most times 20% down.
3. Spain is truly the "Florida of Europe." Northern Europeans are flocking there for retirement and don't plan on stopping. They can still sell their modest home in the North and buy up and still have lots of money left over.

Don’t get me wrong. I do believe that the Spanish market will correct more than most people there want to believe, but NOTHING like what lies ahead here in the US. Here, there will be hell to pay until all the housing specu-debtors get flushed out.

Anonymous said...

Oh no, another bunch of useless eaters will have to go back to working for a living instead of stealing from productive citizens via inflation.

Oh the horror.

Ben Franklin said...

From what I've read, the housing bubble hasn't effected Germany or France: is that true?

Any explanations for WHY these countries have avoided the non-sense?

Obviously there MUST be lessons (differences in lending standards, gov't policies, etc) there for the countries that ARE going to be getting laid out by the tidal wave....

Anonymous said...

I asked about fixed rates and he looked at me like I was crazy –and then he told me that rates don’t go up and it didn’t make sense to pay a higher rate that was fixed.

Ha ha!

Suppose you ask them, "If the banks were sure that rates wouldn't ever go up, then why does the fixed rate cost more? Wouldn't they love to have me in a fixed rate if future rates will be no higher, but could be lower?"

What would they say?

"Laandru! Laandru! Help us!" (two snaps up if you get this!)

FlyingMonkeyWarrior said...

LOOSE rymes with moose, and lose is what the fliptards did, but how do you spell loss?
te he

shtove said...

From the Times of London on Spanish property:
http://property.timesonline.co.uk/tol/life_and_style/property/overseas/article1712024.ece
It's a buying opportunity! There's an accompanying piece in the print version: SMART MONEY GOES ACROSS THE ATLANTIC. Apparently, buyers should be pouring their sterling into the Florida property market.

keith said...

germany - suffering deflation and 10% unemployment - no housing bubble

france - housing prices up 210% in the past 10 years - big housin bubble

it all comes down to the eurozone - some countries needed a higher interest rate to cool their bubble and didn't get it (france, ireland) others needed a lower rate to help their stagnant economy and didn't get it (germany)

FlyingMonkeyWarrior said...

Apparently, buyers should be pouring their sterling into the Florida property market.
**********
Yep, they instantly get a 50% discount, what with the pound sterling against the USD. That is a good deal.
It is what I do.

Adam said...

Yep, they instantly get a 50% discount, what with the pound sterling against the USD. That is a good deal. It is what I do.

Sounds good on paper, but is a 50% discount on an asset that is STILL over-valued 2-3X above fundamentals , and is going to be depreciating in the future such a smart idea? I dare say the deflation of Florida real estate is not even started, for the most part....

PS have alot of fun dealing with TSA agents, too. ;)

FlyingMonkeyWarrior said...

TSA agents, too.
********
Yep, so I am told. It is a problem.

Anonymous said...

If you have sterling and want dollars you can do a trade that is alot easier than buying dollar based real estate. Buy a US treasury bond...the commissions are alot lower. Then principal and interest are guaranteed also.