Spain -- the next big subprime case !

Discussion in 'Trading' started by trillenium, Aug 11, 2007.


    From 1998 to 2007, U.S. home prices increased by an average of 50 percent. The corresponding value in the Netherlands, France and Sweden was 75 percent, while for Spain, Ireland and the United Kingdom it was 100 percent.

    Rises in home prices alone do not mean the loan systems were unstable, although they probably indicate some sort of bubble. Europe's worst problems will be in the countries where some U.S.-style subprime lending practices overlap with the above-mentioned stratospheric house prices.

    By far the most exposed country will be Spain, where 98 percent of new mortgages are variable rate and the bulk of new mortgages go to recent immigrants with little to no to bad credit history. The combination of volatility plus inexperience plus skyrocketing house prices plus weak demographics (Spain has very few nonimmigrant young people to soak up houses sold by retirees) threatens to create the perfect storm of housing and financial crisis.
  2. Relax, 75% appreciation over 10 years amounts to around 6% annual appreciation. That's pretty normal for housing.
  3. Depends on where inflation is. I don't buy the line that inflation is as low as they say it is, but I'm not sure it's 4.5-5% which is where it needs to be for 6% annual home appreciation to be normal.

    Home appreciation probably never beat fed funds rate as badly as it did 2001-2006.
  4. The Financial Times has been reporting this story since at least late 2006. And Bloomberg more recently

    There are residential ghost-towns around certain Madrid suburbs due to overbuilding. There is no question but that Spain is heading into a housing recession.

    Ireland too appears to be on the precipice with similar lending standards (which is to say, no lending standards), variable rate debt and rampant house price appreciation that has just ground to a halt.

    Unlike the US and UK, theses countries have never experienced a housing bubble and have both had Socialist leanings in their political past. So we'll see what happens when wide-scale foreclosures get under way.
  5. If I recall, back in March of so, the Economist had an article describing entire "towns" and communities of new built up houses that were empty. People having to drive 10 minutes through mazes of empty homes to get to a corner store... kind of a haunting precedent for what could happen in Spains credit Markets.