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Tuesday, April 8, 2008

Slow Motion Housing Crash: UK, Spain

U.K. House Prices Fall the Most Since 1992, HBOS Says (Update4): “U.K. house prices dropped by the most since 1992 in March as the seizure in credit markets worldwide forced banks to pull mortgage offers, a report by HBOS Plc showed.

The average cost of a home in Britain fell 2.5 percent to 191,556 pounds ($379,000) from February, HBOS, the U.K.'s biggest mortgage lender, said in a statement today. The 1 percent drop in the first three months of this year from the fourth quarter was the biggest since 1995.

The pound fell after the report on speculation that the Bank of England will reduce the benchmark lending rate on April 10 for the third time since December to prevent an economic slump. Abbey, the U.K. unit of Spain's Banco Santander SA, today became the last major British lender to stop offering home loans that require no down payment as rising funding costs hamper banks' ability to lend.”

There really isn’t much to say, except now that the trend has changed from up to down, so too will the behavior of financial firms change from loose to tight despite the very best efforts of the authorities. Banco Santander for example has just now realized that it would be in their very best interests to cease with risky, no down payment loans because home prices are now falling. This now has the fantastic effect of freezing out of the real estate market EVERYBODY who wants, needs or has a no down payment loan. This basically bans the financially strapped and the financially illiterate from getting into the real estate market with the consequence of reducing the BID in real estate markets in general as this BUYING POWER is removed. This also has the effect of completely screwing the financially strapped and the financially illiterate that got into real estate with no down payment in the last five years. When their mortgages are up, they will have nowhere to go to re-finance and they will be forced to LIQUIDATE at the most inopportune time. Since they will no doubt be underwater on their homes, everybody from the unhappy former homeowner down to the bank will have to eat their faire share of the losses.

Spanish Property Auction Flop Brings Down Gavel on Housing Boom: “The event shows the depth of Spain's housing bust after prices tripled in the past decade. In January, the government's housing policy director, Rafael Pacheco, called the slowdown “moderate and orderly” after January sales volume fell 27 percent from a year earlier as the global credit shortage forced banks to reduce lending.”

If a 27% drop in sales volume is moderate and orderly, then I would love to have Rafael demonstrate what his understanding of SEVERE and say CHAOTIC is.

“Spaniards' real estate obsession -- the right to “a decent and fitting home” is in the constitution -- helped drive a 15- year economic boom that saw the economy almost triple to 1.1 trillion euros as the country overtook Italy in income per head.”

The Spanish economy tripled on wild speculation in real estate as cheap money from the ECB flooded the country. Upon joining the ECB, interest rates in Spain dropped. More importantly, real rates turned negative. That of course made this BUBBLE INEVITABLE. Only a SUCKER didn’t borrow madly. The smart money is of course long gone, leaving behind only the bagholders.

If the economy tripled, and a good chunk of it was on wild real estate speculation, how much of that 1.1 trillion Euros will turn out to be nothing but the ILLUSION OF PROSPERITY?

Hint: In Japan real estate AND equity prices dropped by 90% over 15 years after their shockingly similar bubble burst.

Sure, this time could be different… but not by much.

But don’t worry: Cramer Off His Meds, Calls for Housing Shortage!

Related Posts:
More Ghost Towns
UK: Defiantely The Next Important Victim
Ghost Towns? In Spain?

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