Editor’s note: This article was first published in April 2011; its forecasts of three to five more years of falling Spanish house prices, unemployment about to pass 5 million and banks becoming the biggest real estate agency are from then, as is the ECB rate rise of spring 2011.
In the past, property was considered the best investment, because it didn’t lose value and grew more valuable over time. Today, anyone paying off a mortgage is paying more than their home is worth. Now more than ever, many people will agree with Robert Kiyosaki, who argued that a home is not an asset but a liability.
There are two pieces of bad news, both for the construction sector and for ordinary homeowners: while construction is picking up considerably again in the rest of Europe, Spain remains weighed down for several reasons.
Year-on-year increases stand at 56% in Germany, 15% in the Netherlands and 21% in Poland, while Spain is at -31%.
Some analysts are optimistic and think we have three more years of falling house prices ahead, after which prices will start rising again.
Then there are the realists, who, after studying the state of the market, see no end to it in the next five years, and expect house prices to stagnate for roughly another five years after that.
The housing stock is still out of all proportion, bad loans keep piling up at the banks, and the banks themselves are competing with the property sector, since more than 90% of the mortgages they grant are for their own properties, acquired through repossessions.
The rise in interest rates doesn’t help people pay their mortgages, and holders of Euribor-linked (variable-rate) mortgages are expected to push defaults higher. With unemployment soon to pass 5 million and no prospect of new jobs being created over the next three years, in about four years the banks will become the biggest real estate agency on the planet. That is not a good sign either for house prices recovering or for the revival of the construction sector.
I just hope someone has thought about alternatives to the property sector for creating jobs in the future.
Further reading
Featured image: GRUPO FRANCISCO HERNANDO, CC BY-SA 2.0, via Wikimedia Commons.
