Spanish property bubble
Encyclopedia
The Spanish property bubble refers to the massive growth of real state prices observed, in various stages, from 1985 up to 2008 in Spain
. The housing burst can be clearly divided in three periods: 1985-1991, in which the price nearly tripled, 1992-1996, in which the price remained somewhat stable, and 1996-2008, in which prices grew astonishingly again. Coinciding with the late 2000s crisis
, prices began to fall.
House ownership in Spain is above 80%. The desire to own one's own home was encouraged by governments in the 1960s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Further, the oldest apartments are controlled by non-inflation-adjusted rent-controls http://www.jubilo.es/asp/pagina.asp?IDPagina=3360 and eviction is slow, thereby discouraging renting.
As feared, when the speculative bubble
popped Spain became one of the worst affected countries. According to eurostat
, over the June 2007-June 2008 period, Spain has been the European country with the sharpest plunge in construction rates. Actual sales over the July 2007-June 2008 period were down an average 25.3% (with the lion's share of the loss arguably happening in the 2008 tract of this period). So far, some regions have been more affected than others (Catalonia
was ahead in this regard with a 42.2% sales plunge while sparsely populated regions like Extremadura
were down a mere 1.7% over the same period).
Banks offered 40-year and, more recently, 50-year mortgage
s. Unlike Ireland, Spanish labour costs did not track house market rises. While some observers suggest that a soft landing will occur, others suggest that a crash in prices is probable. Lower home prices will allow low-income families and young people to enter the market; however, there is a strong perception that house prices never go down. As of August 2008, while new constructions have come virtually to a halt, prices have not had significant movements, neither up nor downwards. The national average price as of late 2008 is 2,095 euros/m2
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
. The housing burst can be clearly divided in three periods: 1985-1991, in which the price nearly tripled, 1992-1996, in which the price remained somewhat stable, and 1996-2008, in which prices grew astonishingly again. Coinciding with the late 2000s crisis
Late-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...
, prices began to fall.
House ownership in Spain is above 80%. The desire to own one's own home was encouraged by governments in the 1960s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Further, the oldest apartments are controlled by non-inflation-adjusted rent-controls http://www.jubilo.es/asp/pagina.asp?IDPagina=3360 and eviction is slow, thereby discouraging renting.
As feared, when the speculative bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
popped Spain became one of the worst affected countries. According to eurostat
Eurostat
Eurostat is a Directorate-General of the European Commission located in Luxembourg. Its main responsibilities are to provide the European Union with statistical information at European level and to promote the integration of statistical methods across the Member States of the European Union,...
, over the June 2007-June 2008 period, Spain has been the European country with the sharpest plunge in construction rates. Actual sales over the July 2007-June 2008 period were down an average 25.3% (with the lion's share of the loss arguably happening in the 2008 tract of this period). So far, some regions have been more affected than others (Catalonia
Catalonia
Catalonia is an autonomous community in northeastern Spain, with the official status of a "nationality" of Spain. Catalonia comprises four provinces: Barcelona, Girona, Lleida, and Tarragona. Its capital and largest city is Barcelona. Catalonia covers an area of 32,114 km² and has an...
was ahead in this regard with a 42.2% sales plunge while sparsely populated regions like Extremadura
Extremadura
Extremadura is an autonomous community of western Spain whose capital city is Mérida. Its component provinces are Cáceres and Badajoz. It is bordered by Portugal to the west...
were down a mere 1.7% over the same period).
Banks offered 40-year and, more recently, 50-year mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
s. Unlike Ireland, Spanish labour costs did not track house market rises. While some observers suggest that a soft landing will occur, others suggest that a crash in prices is probable. Lower home prices will allow low-income families and young people to enter the market; however, there is a strong perception that house prices never go down. As of August 2008, while new constructions have come virtually to a halt, prices have not had significant movements, neither up nor downwards. The national average price as of late 2008 is 2,095 euros/m2