‘Crazed Housing Markets’ in Spain, Italy

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Wolf here: occasionally I highlight a comment that adds a different flavor or an illustration or more depth to an article published on Wolf Street. This is a comment by “MC” on my article, Last Time Inflated Home Prices Strangled Sales Like This, the Housing Market Crashed.

By MC:

Just want to let you Colonials know you are not alone in facing a crazed housing market.

My uncle recently started looking for a small country house for his retirement. Nothing fancy. Since I globetrot around Europe most of the year, I offered to look into home prices on some markets.

Spain is probably the worst basket case I’ve seen. We all know the excesses of their pre-2009 housing bubble: whole ghost towns built in the middle of nowhere, rampant speculation etc. Hence I expected prices to be at least in the realm of sanity as liquidation should be ongoing. I was dead wrong.

Despite an economic situation bordering on the dramatic, home prices are soaring to the highest level in six years. I did a bit of research since I could not conceive how this was possible and I found large PE firms have started probing the Spanish market for alternatives to the vastly overpriced US market, with the rationale of selling/renting vacation houses to wealthy foreigners, chiefly Germans and Britons.

In case someone doesn’t remember, this was exactly one of the main drivers behind the 2002-2008 Spanish housing bubble: vacation houses for foreigners. Starting in 2006-7 already, however, those foreigners drastically reduced their purchases for the same reason 33% of prospective US homeowners keep on renting instead: prices were simply too high.

Lesson not learned.

Fast forward to Italy. Prices are not in the same Bedlam level as Spain but are still outrageously high, especially in the North. This area went through a housing bubble as well which, unbelievably, is still ongoing: cranes and bulldozers are still hard at work, often right next to rows upon rows of unsold houses and deserted shopping malls.

The rationale here is a tad different than in Spain: to counter the massive decline in manufacturing, a decline they largely brought upon themselves, Italians went on a building craze, and are still living in a fantasy world were a house is still a blank check. Every dirty trick in the book has gone into desperately fighting the inevitable price decrease that goes hand in hand with a massive glut in supply coupled with declining real wages and soaring unemployment.

And finally we get to France. I limited myself to searches in areas I know well (Provence-Alpes-Côte d’Azur, Lozere, etc.). I was pleasantly surprised to find prices seem in the realm of sanity, at least for the time being. Local legislation isn’t very amenable to large PE firms and the depopulation of rural areas is still ongoing: steer clear of Paris, Lyon, Toulouse, etc., and you can still grab a good deal.

Most of all, it seems the French, differently from their Southern neighbors, still see housing for what it is and not a magical recipe to prosperity. By “MC” commenting on Last Time Inflated Home Prices Strangled Sales Like This, the Housing Market Crashed.

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