Spanish Housing Prices

I continue to follow the real estate market. Years ago Spain was praised as the best real-estate market in the world. However, when something is repeatedly called the best there is usually a catch. Names like Enron, WorldCom come to mind and I remember when the WorldCom CEO was Business Man of the year, etc. The same happened to the Spain's real estate market. It is likely to be the worst real-estate market in the world today.

I did my own little pricing calculations on real estate I purchased in the past using a Price/Earning formula, a PE ratio. See the article here. Back then I computed that my flat was 57% overpriced. Since the truth is often so far from the portrayed reality, sometimes it is hard to believe in your own computations. The Economist magazine just published an article entitled "Ratio Rentals" where despite last years drop of 10% in private real estate prices, homes still are 55% overpriced. Looks like my computation was not far from the truth.

Here is a Spanish article discussing the same topic. It says that private real estate prices in Spain must fall an additional 35% from their current value in Dec 2009 in order to be in line with its historic long term rent-based PE ratio.

This article also provides real data on home prices for 2007, 2008 and 2009 for various Spanish provinces and cities in form of a spreadsheet. This data shows that some hot-spot cities like San Sebastian and Barcelona have seen home prices fall some 10% over the last two years. Other cities have seen drops of 20% over the last 2 years. In some extreme cases homes have lost 40% over the last two years.

But remember prices are still 55% overpriced on average and should fall 35% to get back to historic price/rent ratios. And if you look at the table you will see that Spain is the most overpriced real-estate market in the world. So remember, what goes up must come down. Whenever something is hyped to be the best, soon after it will be the worst.