The Spanish housing market, a contrarian point of view
Generally speaking I’m Mr Doom and Gloom aka Peter Schiff, but I’m starting to have second thoughts about the Spanish housing market. Against all odds Spain my actually defy the laws of gravity for several cultural reasons.
First and foremost like Americans the Spanish are homeowners rather than renters but unlike America bankruptcy still carries a strong stigma in Europe. The reason why the foreclosure crisis isn’t ending in America is very simple. You can walk away from your home today and tomorrow buy another one at half the cost. Why the hell pay negative equity. America is a culture that is based on wiping out ones debts and starting over with no stigma attached. Go bankrupt today and tomorrow there will be a dozen credit card offers in your mailbox.
To the Spanish owing a home takes precedence over everything, that’s why you seeing car sales collapse, restaurants going under but not a tidal wave of foreclosures. They do anything to keep the house. I actually have some friends in that very situation, bought at the top of market and they are suffering for it. The wife gave up her dream of being a SAHM to go back to work fulltime, they are very tight for money but in no danger of being forced to sell either place.
Secondly and rather surprisingly houses, at least around Madrid, are selling, prices are soft and it’s a tough market but I’ve have several friends who have sold places. For instance our hair dresser’s husband lost his job and they are being forced to sell the place as they can’t afford the payments (mortgage payments are up 400 euros a month) in spite of an asking price north of 500.000 euros (very nice place) and the fact that it’s outside of the city, they’ve had several serious offers. Problem is finding someone who can close. This has happened to several friends, it’s 3 or 4 serious offers to find a buyer who can close. I don’t know how anyone can afford the prices around here but offers are still coming in.
I’m not as familiar with the coast but in my impression is it breaks down into two distinct groups Spanish and British. The Spanish will simply wait out the market it will never recover but they won’t sell at a loss.
The British fall into 2 groups, in my humble opinion.
Top tier are those who’ve been here long term, well establish and unless they’ve mortgaged themselves to the hilt aren’t likely to suffer too much.
Followed closely by the fifty something retiree with the tax payer funded indexed to inflation guaranteed for life pension, as long as the pound doesn’t hit par with the Euro shouldn’t be a problem. Main issue is, if after a few years of living in Spain they decide to return home. If they bought a house in the wrong area they’re very likely to have serious problems as it will be very hard to sell the place for what they paid for it.
The people (British) that are going to suffer the most from the housing collapse are those who bought investment properties in the last few years as the weak pound and recession in the UK keeps holiday makers at home. As well as those who moved here thinking they could make a living without speaking Spanish and have little resources to draw on. Been reading quite a few articles of recent about that very thing. It’s really sad because often the people have been here long enough for the kids to adjust culturally to Spain and they are moving back with no money no job and no future.
A lot of people have mentioned the Sun as another reason why Spain may escape and at first I was dismissive of the argument but the California experience tells me other wise. In spite of a major housing market meltdown California still has the lowest affordability in all of the US. Why, very simple, it’s a dam fine place to live and enough people with money want to move there to keep prices high.
My own opinion is, and this is where Mr Doom kicks in, is that the coast will suffer the most. Way overbuilt, bad reputation corruption etc means it will take years if ever for the coast to recover. The British areas, by far, will be hit the hardest. Madrid will escape relatively unscathed because the economy is stronger, more serviced based, and wages are higher here.
Unfortunately for the Wife and I the hopes of a 50% off sale are fading. It’s frustrating because prices are so high here (comparable to the south of England) and the property is carp. 500,000 pounds buys you a poorly built row house which leaks when it rains and the doors and windows don’t work half the time. And that’s not even in Madrid!!!!!
This message was last edited by Rob in Madrid on 7/30/2008.