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Os dejo el tochillo (nunca mejor dicho ;-DD)
Spain's Housing Boom Faces a Test
Economists Worry About a Hard Landing
And a Resulting Ripple Effect
By KEITH JOHNSON
September 11, 2006; Page A6
MADRID -- A decade of red-hot growth in the Spanish housing market fueled a jump in such things as jobs and consumer spending, turning Spain into one of the fastest-growing countries in the euro zone. But now, economists say the real-estate boom is coming unmoored from the economic fundamentals that once drove it, and they worry the market is headed for a hard landing that could have repercussions for the rest of the economy.
Incomes are no longer rising, but home prices continue to soar. Meanwhile, interest rates have started to head higher, making mortgages more expensive. Housing starts jumped 15% in the first half, while more than 3.5 million homes remain empty as owners wait for the value of the house to appreciate
"Spain is headed for a first-class beating, and the only question now is when it will come," says Lorenzo Bernaldo de Quirós, an economist and head of Freemarket International Consulting in Madrid.
For much of the past decade, Spain's housing boom seemed to have only an upside. Housing prices have more than doubled since 1997. Nearly four million new homes have been built since then as young Spaniards riding a wave of rising employment bought their first houses and older Spaniards poured their savings into real estate.
The boom has had a trickle-down effect that spread to just about every corner of the economy, which has been expanding on average 3.2% a year since 1995. Since 2000, the year the boom kicked into high gear, 20% of the four million new jobs created in Spain have been in construction. It is one of Spain's largest industries, accounting for more than 10% of the country's economic output.
Construction companies such as Actividades de Construccion y Servicios SA saw their fortunes swell as Spain became the biggest per-capita consumer of cement in the world. Homeowners, feeling richer, sparked a rise in consumer spending, which in turn kept economic growth at among the highest levels in Europe.
Spain has been a leader in Europe's housing boom, with countries such as the United Kingdom, France, Ireland and much of Scandinavia all recording big housing-price increases. As in the U.S., these countries have had strong housing markets prop up their overall economies.
The question has been whether countries such as Spain, France and Ireland -- which have seen the biggest housing-price jumps -- could engineer soft landings that would minimize the effects on the rest of their economies. In the past year, the Spanish market appeared to be slowing. Year-on-year housing-price increases eased from 20% at the beginning of 2005 to about 12% at the end of 2005. Housing starts also began to slow.
But now, the real-estate boom seems to have new legs. In the first half, housing prices, appraisals, housing starts and cement consumption all jumped, confounding experts' forecasts and raising antiestéticars that the market is overheating and that a hard landing could be coming.
"This uptick is sending exactly the wrong signal to Spanish families," Mr. Quirós says. "Instead of acting rationally and preparing for a tougher climate ahead, they are still acting like the party will never end -- and that will make the ending all the more painful."
Despite millions of empty homes, construction activity appears to be picking up. Spain has been building more houses than France, Britain and Germany combined for the past five years straight. In the first half, housing starts accelerated to 15%. Spain, with 44 million inhabitants, is on track to build 760,000 new homes this year, nearly half as many as the U.S., which has a population that is seven times as large.
In the U.S., housing starts fell for the fourth straight month in July, and construction confidence is at levels of the 1992 recession.
While Spain's builders keep breaking ground and prices continue to rise, many of the broader economic factors that once underpinned the boom are fading. Houses are more expensive than they were when the boom began a decade ago. For instance, one house now equals about 6.5 years of the average salary, compared with 3.5 years' salary in 1996. Household incomes are barely keeping pace with inflation. Not as many new households are being created, meaning fewer families are looking to buy. Purchases of vacation homes by foreigners appear to have peaked three summers ago, according to Spanish balance-of-payment data.
[Spanish real estate]
Real-estate promoters are working harder to sell houses, including promotional giveaways such as home appliances to lure new customers, says Jose Barta, head of an eponymous real-estate consultancy in Madrid that tracks pricing trends. "I haven't seen them resort to those kinds of gimmicks in years," he says.
Many economists are worried the unchecked home building means supply is outstripping demand, raising the likelihood of a sharp price correction. In a hard landing, says a report by Banco Bilbao Vizcaya Argentaria SA, house prices could start falling by the end of next year and drop as much as 15% by 2009.
That could sideswipe Spain's economy as a whole. Local governments rely on taxes and building permits for revenue. The country has been able to absorb more immigrants than other countries in the European Union in the past decade in large part because the construction sector kept creating jobs and houses. "Spain is more vulnerable to the knock-on effects" of a sudden real-estate drop than other more-diversified economies, says José Luis Escriva, head of research at BBVA.
The biggest worry is consumer spending, which makes up 60% of the Spanish economy. Spanish homeowners doubled their debt levels -- to 120% of income -- during the boom. With 98% of mortgages variable-rate, each uptick in interest rates hurts disposable income. The latest rate increase by the European Central Bank raised average monthly mortgage payments in Spain by €115 ($146), for example. The average national salary is about €1,200 a month.
Many economists say a soft landing is possible. Housing demand is propped up by immigration, and foreign buyers of vacation homes are still coming, though less often than before. Interest rates are low enough in real terms that households can meet mortgage payments.
Getting Spaniards to stop pouring their savings into real estate is difficult. Real estate has returned more than 15% a year on average over the past 20 years, ahead of the stock market, and many people feel it is still a sure investment. Pedro Anda, a 50-year-old microbiologist, paid €445,000 for a penthouse in the Madrid neighborhood where he has lived for a decade. He will spend this month fixing it up. "It doesn't seem cheap, but then neither did our old place when we bought it. It just seems hard to go wrong with real estate," he says.
