Housing Crisis Threatens Spain’s Economic Recovery

September 16, 2010 at 4:30 pm Leave a comment

The online edition of the Wall Street Journal features an interesting analysis of Spain’s housing crisis, of the “real estate bubble burst” as Spanish newspapers call it.

Spain’s unsustainable economic bubble of the mid 1990s and early 2000s is being analyzed by pointing out the immense number of houses built during this period that remain unpurchased. According to wsj.com, “Economists say in a healthy market it would take at least three years to sell all of Spain’s unsold homes that were built during the boom.” The years of unsustainable prosperity are now gone, and Spain is struggling to cut deficit and expenditures. Of course, there is a lot more in stake than houses remaining deserted.

Spain is the fourth biggest economy using the Euro currency and the future of the Euro-zone depends on its ec0nomic recovery. Credits and mortgage kept Spanish banks or cajas busy and the economy growing. “Investors believe banks need to be more transparent about the number of bad loans and other assets they have on their books. Instead of disclosing troubled credit, many Spanish lenders have chosen to refinance loans that could still prove faulty and to report foreclosed or unsold homes as assets, often without posting their drop in market value. Even after many banks passed this summer’s government-imposed “stress tests,” economists believe such assets still pose a danger.

Still, bad loans and real-estate assets are lingering the the banks’ books. The backing of the government and the refinancing of the sector are hoped to help bank digest losses and emerge as stronger financial entities.

The enthusiasm of easy loans and the haste to build more and more has left the banks weakened by non-payments and the developers without buyers. Now, the austerity measures imposed by the government and several other correction in the field have determined a thin economic growth.

Source: wsj.com


Entry filed under: Housing, News, Real estate. Tags: , , , , , , , , , , , .

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