A small respite

The international financial sector has seen weeks of continuous upheavals: US, British, Belgium and German banks and insurance companies on the verge of bankruptcy, one country’s financial system in meltdown (Iceland), stock exchanges at record lows, all European governments launching economic intervention plans even more ambitious than the Bush Plan. Each day has brought a new surprise.

At last it seems that the joint effort of all these governments has restored faith in the system and, if all goes well, it should soon recover some liquidity.


Will this have an effect on Spain’s housing market? In my opinion, it will.

There are two main causes for the current problem of the Spanish housing market: Continuous price rises which have caused what is known as a "bubble" and a financing problem which is the result of the international financial crisis. The shortage of financing caused by a lack of liquidity on the interbank market also has two effects: financial problems for developers who cannot finance the stock they have accumulated, and difficulties in accessing loans by end customers. Both situations inevitably lead to the fall in prices we are currently experiencing.

If the intervention measures approved (injections of liquidity, purchase of assets by States, acquisition of holdings in banks with problems, government guarantees of interbank loans) achieve their goal, part of Spain’s house sales problem will have been resolved. Because developers will be able to refinance their debt more easily. And because buyers will once again have access to credit under more or less normal conditions. Never again will we see the excesses of the past, but at least the “short circuit” that has occurred in the housing market will be repaired.

Without doubt, the negative effect for buyers will be the following: as the credit situation returns to normality, the dramatic falls in house prices we have seen in the last 5 months will level off. There will be less pressure on developers to sell and so the continuous drop in prices will lose pace. What is true is that, given the excess stock on the Spanish market, even if prices do not drop any further they will remain at current levels for some time.