June 08, 2007

Spanish housing crash: Ghost towns, inflated appraisals, wild oversupply and rampant speculation. Dios Mio!

Take five minutes of your life and read this whole article on the housing crash underway in Spain. Substitute "Phoenix" or "Miami" or "San Diego" or a plethora of American cities for "Spain" and you'll see this housing bubble went worldwide.

It all seems so damn obvious now. So damn obvious.

HP'ers, you are witnessing in real time the biggest financial collapse in the history of the world. And we're just getting started.

Ghost Towns Appear in Spain as Decade-Long Boom Ends

Spanish builders constructed 750,000 houses and apartments last year, more than France and Germany combined, while annual demand runs about 60 percent of that, according to the Finance Ministry.

Spanish buyers may face an even higher risk of losing their property because housing prices are based on appraisals rather than actual sales, and appraisers often inflate values.

``We live in a country where everybody understands that appraisals are poetry,'' said Jesus Encinar, chief executive officer and founder of Idealista.com, a property Web site that tracks existing home prices in Madrid, Barcelona and Valencia. ``Bankers have said to me, `Why do you care if the appraisal is fake? It will be true in the future.'''

``The problem here is that people have this unshakeable conviction that prices simply cannot fall,'' Encinar said.
Just as developers profited from first-time buyers, they also have benefited from investors who bought property in anticipation prices would rise.

The result has been that builders were fooled about the true demand, said Bernardos at the University of Barcelona.

In Sanchinarro, Las Tablas and similar developments, ``a flood of speculators bought up apartments thinking they would make a killing as the boom continued,'' said Bernardos. ``Now big developers are competing with these very speculators for sales as they flee the market.''

17 comments:

Anonymous said...

Hi from Spain, let me tell you that if you have a bubble we have a insane zeppelin.

A few key differences:

- 97% (yes 97%) of mortgages are at variable rates, most of them from the last few years were the interest rates have been historically low. Rates are soaring.

- Most mortgages are for 30 or 40 years, our parents had 10-15 years mortgages. A friend of mine has a 35 years mortgage and the other a 40 years one. One was paying 1.200€ two years ago now is paying 1.650€, this is hurting them (him and his wife) a lot.

- Renting is for poor, everybody wants to own. Less than 10% of population rents.

- We have a trade deficit worse than yours. In absolute value about one third but we're 40 million people.

- Our wages are much lower, $1.500 is a typical monthly salary for a 'worker'.

- Our economy depends on tourism, construction and internal consumption. We're doomed.

- We have no control on interest rates, we're from the EU.

- We have much less experience with credit, 35 years ago we had a dictatorship with franco and a closed economy.

- The illness infected the whole country not just parts of it.

- Check this out for 1.100.000€ (around 1.5$ million) and cry.

http://tinyurl.com/yw925y

This is a normal flat from a normal neighborhood in Barcelona were I live. Other cities are cheaper but Madrid is more expensive.

USA and Spain go on hand on:

- Most people is still convinced that prices can't go down.

- As in USA Refinancing is rampant.

- Our real state cheerleaders are as good as yours. Including all political spectrum and mass media.

Finally, thanks for your website.

keith said...

Now that the headlines are blaring "Spain Housing Crash" here in London, watch the Brit flippers (who bought up so many of these homes) rush to put 'em on the market, and I don't think you'll see lines forming in front of off-plan developments any time soon

The end of the Spain housing ponzi scheme came quick. Really quick.

It'll be the first domino to fall in Europe.

Then comes Ireland. Then comes Ukraine. Then comes Slovakia. then comes England. Then comes France. Then comes Scotland.

One by one they'll fall.

Anonymous said...

Just wait until the derivative market unravels. Back to the Stone Age and the barter system. Oh wait, that's the Apocalypse, so that makes it okay to run the place into the ground because you're going to get bailed out anyway after a few years of misery...

Illegals Everywhere said...

Phoenix and Vegas already have mucho ghost towns. Cookie Cutter Ghost Towns aka CCGT's

Anonymous said...

>The end of the Spain housing ponzi >scheme came quick. Really quick.

Well, in fact hasn't come yet. Or at least is not widely acknowledged, as it's now in the States. MSM are starting now to write on the subject, most of them are in the "soft landing" side, but it's much more than just 6 months before when they were cheerleading that RE "always goes up". The fact that almost all RE stocks are going down is raising some eyebrows too.

Anyway we're always 1 year later than USA, so I expect the realization of the end of the bubble, people facing the really harsh side of it, to be around 6-8 months from here.

London STUD said...

Hi Keith,

Have you been to this site:

http://www.propertysnake.co.uk/

We need one of these sites for every city in the world...

Stuck in So Pa said...

If that ending doesn't scream doom and gloom, I don't know what does.

"Not even God lives here"

Time to move!

Anonymous said...

>> Bankers have said to me, 'Why do you care if the appraisal is fake? It will be true in the future'

Bernanke has said to me, 'Why do you care if the currency is fake? It will be inflated away in the future' :)

Keyser Soze said...

Sancho and Don....I love those guys!
Got windmills?

Jambu said...

"Illegals Everywhere said...
Phoenix and Vegas already have mucho ghost towns. Cookie Cutter Ghost Towns aka CCGT's?"

Not really. I lived in Las Vegas up until recently. There are some new home developments that have empty houses. I never saw one that would be considered a ghost town. Granted I didn't visit every developmeng in the city but I think I saw enough of them to make my statement true.

Guy Daley said...

Well Jambo; he was exaggerating a bit on the ghost town claim but I think you get the idea. We don't want to play semantics on what constitutes a ghost town.

I went to GREELEY, COLORADO the other day to attend an event and buy some tools. I spent two hours walking around downtown which is the historic section. I saw an astonishing number of for sale and for rent signs. It was Thursday evening from 6:30 - 8:30 PM and the city was rolled up. Very little traffic. It would be a very quiet place to live if it wasn't close to the train tracks. Was it the ABSOLUTE AND TECHNICALLY CORRECT definition of a ghost town with tumbleweeds, dirt streets and squeeky gates flopping in the wind? No. But it damn sure was reminiscent of one.

I'm not sure why your so picky. Are you the same way about government statistics like inflation and unemployment? If your not, then your a hypocrite.

Guy Daley said...

This thread only had 10 posts in it and yet it is one of the most important threads on this forum recently.

Thanks to the input from the Spain resident. Its great to get some foreign input on whats happening elsewhere.

This is a harbinger of a worldwide recession, not just a housing panic in the US. Scumbag federal banks around the world have been pumping liquidity for years to help build these Ponzi schemes.

In any case the Brits are responsible for a large % of the runup in Spain and they have substantial number of holdings in the US which means they will have to sell to try and stay solvent which means MORE downward pressure on housing prices in the US. They are HUUUUUUUGGGGGGEEEE speculators in Florida. Primarily because the pound is so strong and they can buy our houses like boxes of cracker jacks. Naturally that will catch up to them eventually.

Concerned said...

Exactly the same thing in Greece.....if not worse.

PatrickS said...

I just want to add to this thread that Spain is not the only country in Europe facing into a massive house price crash. Here in Ireland, house prices increased by 300% (yes, 300%!) since the mid 1990s and all that's been propping up the insane market in the past 5 years has been massive lending by banks and building societies - to the point where the average house price is 10 times average salary and only high earning dual-income couples can afford to buy in Dublin, the capital where house prices have reached stratospheric levels.

It has got to the point where lenders were advancing 40 year, 100%, interest only mortgages and first time buyers have also been dependent on parents gifting them money raised against the value of their own houses by re-mortgaging.

Since the start of this year, house prices are dropping. Nothing is selling. And the housing stock is rising - over 250,000 vacant units in a country of 4 million people. The vested interests - the banks, developers and realtors are all pretending that it's just a "lull" which will go away but worried sentiment is now turning into panic among sellers.

Like Spain, we are part of the Euro zone and can't adjust our interest rate - it's going up all the time as the German economy recovers putting massive pressure on new home owners.

Since house building contributes to 25% of our economy and 15% of jobs, the coming crash will badly damage our economy, seen as the "envy" of Europe just a few years ago.

Anonymous said...

We used to live in Ireland. We sold up and moved back to U.S. in 2001. Sell Vs rent was a no brainer when rent can hardly cover the mortgage at the time and Irish renter are not the best. Granted that prices had gone up tremendously since but we would have had to make up the difference in mortgage monthly and deal with renters or rental (non)management companies - too much headache for our liking. I love Ireland and the Irish people but try to get anything done there takes 2-3 times longer than anywhere else! A very slow moving tiger.

But the point I am trying to make is - I tried to follow the housing market but found that it's near impossible to get any up to the minute real figures or facts from the Irish government or newspapers! Talk about control.

MP

Anonymous said...

Subprime hitting home here in Ireland now.

The Independent Mortgage Advisors Federation a few weeks ago has confirmed a number of sub-prime lenders in Ireland have been forced to increase interest rates on home loans.

Prime rates are between 4.6% and 5.6% depending on fixed or long term etc...

Sub-prime lenders already charge an average of 7% to 8% interest and are to increase rates by between 0.5% and 0.75%.

Lending money (throwing money) to clients that have a poor credit history or credit rating at a high rate was never going to stack up.

Subprime lending which added to the property boom here and Im sure in the US and globaly will in fact be the very factor that will cause it to collapse.


BANGALORE, India (AP) -- Indian companies that process U.S. mortgages are reporting fewer work orders and diminishing revenue because of the subprime loan fallout overseas.

Several companies have moved employees once assigned to mortgage documentation and related services to other areas. There is a fear of layoffs should the crisis in the United States continue.

As U.S. lenders tighten credit or close down, the volume of paper work done by Indian outsourcing companies declines because of fewer applicants and fewer loans.

Subprime is far from over.

Has it even started yet ??

Hold on tight

Anonymous said...

Subprime hitting home here in Ireland now.

The Independent Mortgage Advisors Federation a few weeks ago confirmed a number of sub-prime lenders in Ireland have been forced to increase interest rates on home loans.

Prime rates are between 4.6% and 5.6% depending on fixed or long term etc...

Sub-prime lenders already charge an average of 7% to 8% interest and are to increase rates by between 0.5% and 0.75%.

Lending money (throwing money) to clients that have a poor credit history or credit rating at a high rate was never going to stack up.

Subprime lending which added to the property boom here and Im sure in the US and globaly will in fact be the very factor that will cause it to collapse.


BANGALORE, India (AP) -- Indian companies that process U.S. mortgages are reporting fewer work orders and diminishing revenue because of the subprime loan fallout overseas.

Several companies have moved employees once assigned to mortgage documentation and related services to other areas. There is a fear of layoffs should the crisis in the United States continue.

As U.S. lenders tighten credit or close down, the volume of paper work done by Indian outsourcing companies declines because of fewer applicants and fewer loans.

Subprime is far from over.

Has it even started yet ??

Hold on tight