I know Germans / Brits / Scandinavians are / have been big buyers of Spanish property - I'm not disputing that. It's just that compared to the Spanish themselves, all foreign purchases probably account for a relatively small share of the market. Believe it or not, there are whole swathes of Spain where you are still unlikely to find any foreigners living, or even visiting. Like I said before, it's inevitable in the context of a British forum, but I often think this point gets overlooked, and foreigners can have a tendency to overestimate their importance to the Spanish.

Actually, I think that without the massive influx of foreign tourism and other investment over the last 60 years or so, Spain would be a very different place - many well-off city dwellers would no doubt still be picking olives in the fields. But here's the thing; I don't think they'd really give a hoot if they were. In fact, they'd probably be a lot happier (and friendlier).

Sorry, way off topic now

Inland Spain is obviously totally different - certainly in Jumilla it's the Spanish who are buying property and sales seem to be doing well where we live.  Most buyers are young people, who are buying their first home.  We have been told by our friend who works in one of the estate agents that many Spaniards who have properties to sell are unwilling to lower their price, so you probably need to look towards the coast for bargains.

Sue

The traditional British "Urbs" (ghettos, townships, whatever) of the Costas are seeing a lot of sales now going to the Spanish.  Where I had my flat, there were no Spanish at all on the actual urbanisations and consisted of all Northern Europeans.  The Germans started the bigh outflow when their Chancellor stuck a 42% tax on those with second homes (or so the rumour went at the time).  The houses they left were mainly bought by Scandinavians and other Brits.  The Eastern European buyers came in but not in really great numbers, just the odd one or two.  In the last year, these house prices have come down a lot and the Spanish are buying them at realistic prices although they seem to be for holiday homes rather than permanent dwellings.

In my case, my flat was sold for exactly the same price in euros that I paid for it some 7 or 8 years ago plus I have added grilles, aircon, cooker, etc etc.  So have I lost out for getting the same with no profit after all this time?  Not really as I made a £32,000 profit on the deal.  Bought at €106,000 (including tax) euros which was then £67,000 or thereabouts.  Sold it for €106,000 which got me £99,000 as near as dammit.  I don't think I'd have been a happy bunny had I been German or from somewhere else in the Eurozone but, this time, being a Brit had its advantages.  I have also had the pleasure of using the place over the last 7 odd years.

I would urge anyone thinking about buying either Spanish or UK property to think twice. In Spain there are so many reasons why buying is a disaster right now, thats its difficult to know where to start.

But I will try with the top 3.

1. Look back useing history as your guide and you will see that property goes in long cycles, typically 10 years. Never never never has a cycle turned in 2 years. If prices appear to be levelling or even going up, this is normal and is what traders refer to as a dead cat bounce. This is when the market pauses to suck in fresh money before plungeing again to wipe out all the new buyers. The last bust which started in 1989 after a long boom, didn't bottom until 1996, thats 7 years later. THis boom has been longer and much more inflated, you have to imagine that the bust will be worse and the decline longer. This puts any recover likely at around 2013/14 depending when you take the peak from. Howeve even then I do not think that it will be a good idea. The whole of western europe is in decline, with wealth rapidly being transfered to the east, with the job that GB is doing in the UK, whole families will be lucky to have one roof over there heads and their kids any jobs with the debts that he is foolishly racking up.

2. Valuations. Relative to wages Spain still has the highest house prices any where that I have seen in the world and I have been to a lot of places. People tend to get emotional about prices and think that just because a property is reduced by 50% its suddenly a bargain. A little thought on that indicates that this is absurd. Prices boomed in Spain because of a speculative rush and aided by cheap mortgages. People though that you could not lose and the fact that rental yields had gone from 8% down to 1% it didn't matter. It was what economists called the greater fool theory, as long as you could find a bigger fool to sell to it didn't matter what you paid. Then the bubble burst. At the time property was perhaps 400% overvalued after 10 years of double digit rises, if it then falls in half, does that make it good value. Property can only really be valued on its yield, a few months ago people were telling me that you could value it on "bank valuations" per sq foot etc. I hope that these bank valuations now make the banks feel better about all the property that no body wnats sitting on their books. If you have a genuienly great property, people will pay good money to rent it, and you can work out the yield. If no one wants to rent your 2 bed flat for even 400 euros a month long term, then it don;t take much maths to work out its value for sale. The Spanish property was largely based on a number of factors, namely speculative boom ( you can't lose rent it out its your pension etc) - GONE    Cheap and unlimited mortgage finance - GONE and droves upon droves of foreign buyers - GONE.

3. The state of the global economy. Even the most casual observer must have noticed that the world is spiraling into a severe recession at best if not a depression. How does a normal recession turn into a depression, you might have wondered? You turn a normal recession into a depression by getting in the way of market forces that are trying to correct the previous excesses. This menas that actions such as borrowing trillions of dollars or pounds, printing hundreds of billions of pounds out of thin air under the guise of quantitative easing to prop up failing industries and artifically lower interest rates to prop up the housing mkt is doing just that. If you trully think that you can spend your way out of a recession, that printing money will lead to prosperity, you are in for a shock. Under Brown the UK is in the process of printing out of thin air - 150 thousand million pounds. If printing money lead to prosperity, Zimbabwe would be one of the richest countries on earth, its not, its about the poorest.

Spain is grappling with a current account deficit amounst the worst in the world. Unemployment is approaching 20%. Get real does this sound like the sound economics for a booming property market. Even once things stop getting worse, Spain built more property in the boom years than the rest of europe combined!!! This is going to create a huge overhang that is going to take years to unwind.

Watch the global stockmarkets. When this experiment in printing money and the wrackiing up of mountains of unrepayable debt is over, real sound money is going to have to reappear. When this happens interest rates are going to leap towards double digits to encourage saver and real money back into the system. Look back in history and see that this is exactly what happened in the 70s. I can tell you that you will not want to holding property when rates are this high, just imagine your mortgage bill.

Interest rates and bond yields have been in a 20 year bear market. The bond market peaked last year and if history is a guide we are due for 20 years of bond bear market. This will not be a time for property.

The grim reaper returns!

Hi TJ, great to see you back posting here, always interesting and informative.

The million dollar question for anyone with savings, I suppose, is when are interest rates likely to rise (double digits? yes please!) and what effect will inflation have on real returns? Any thoughts?

Allthough you make a lot of valid points - and I wouldn't be at all surprised if property prices fall further than they are at the moment just a couple of points:

1) You should not just rely on history for determining where the economy is going.  Every recession is different from the past ones as the world economy is now very different from what is was back in the 30 s - or even the 70 s.  Governments look at the past and try to deal with recessions in a different way.  This is what our government is doing - trying a different theory to get us out of a recession.  Allthough many people agree with you that you can not spend your way out of a recession many others (including a lot of top economists) believe it will be succesful.

Also if you look at the last recession (in the 80s) interest rates were exceptionally high - at one point I believe they touched 15% - where as today they are virtually nil.

2) I don't believe the recession at the moment is anything like as bad as as the one in the 80s.  You only have to look at the amount of money people are spending on holidays, electrical equipments meals out etc.  In the 80 s (and earlier recessions were even worse) people didn't spend on anything except essentials like food.  People didnt go on holidays - not just go to Turkey because it is cheaper than Spain.

Therefore I think that ther great crash you predict is excessive - allthough I do expect prices property prices to fall.  Allthough at the moment in Spain there appears to be 2 housing markets - cut price bargains at about 30% below the rest of the housing market.  These properties seam to sale the rest just stay put.

alamred lol. Not grim reaper just realist.

Was there anything I said 18 mnths ago looking back that has not turned out?

Roberto

The timing is difficult to tell. It looks to me that Brown will go on borrowing and spending until the gilt market seizes up and yields go thru the roof. Then I think there will be a run on sterling and a trip to the IMF. The UK's credit rating has been put on "watch" by Moodys etc. I bet Soros is licking his lips. Then we can look to Iceland to see what happens.

In europe Merkel and Trichet are taking a much harder line thank goodness, I think the Germans are understandably wary about printing money. The problem is that the eurozone has all the PIGs and eastern lot to fix. They may not have any choice.

I think there will be a double dip recession, so we get a bounce from all the printed money, but because none of the real problems such as too many working for Gov, pension liabilities people scrounging etc no productive industry to support all the hangers on MPs etc - we then bust agin when the borrowed money is gone. Except the next time you have mountains of debt as well. It don't look good to me.

nigela

"Allthough many people agree with you that you can not spend your way out of a recession many others (including a lot of top economists) believe it will be succesful."

I think this short video of the world's top economists a year or so ago should dispel any notions of the above.

http://www.youtube.com/watch?v=t7F1tpqFtgA

These guys didn't even see the propert bubble coming, how do you expect then to have the nouce to fix anything. Bush and Paulson and Bernanke all used the words - The US has a strong sound economy. I seem to remmeber Brwon useing the same phrase recentlt until he was laughed out of the commons.

So in summary = Bush Paulson Ben etc - said don;t worry be happy keep spending it will all be ok - atleast for us lol

I said 18 months ago - The coming worldwide credit crunch thread - cant seem to find it - anyway what I said was all there.

Now do you trust me or Bush - lol

nigela

Brown came to power on a ticket of prudence. That was his catchphrase Prudence Brown. He also said and dare I now type it "No more boom and bust"

Whats the reality 10 years later. We have had the biggest boom and bust in this century. And we have the worst debt to GDP ratio of any developed nation, includeing the US.

People are spending in the UK, becuase of an illusion of prosperity. Its like the wizard of Oz's majic powers. 50% of people are either directly or indirectly employed by the government and or not working and claiming dole or sick, a good few of these having never paid a penny to the system in their lives.

You don't need to do the maths to know that an ever shrinking army of hard working honest people can;t pay for all these hangers on be they sick, unemployed or MPs. Worse still are the leagues of government consulatants who are paid by the tax payer to think up ways to make the few private sector workers lives more difficult and miserable.

The public sector unfunded liabilities (mostly gilt edged pensions) is now 3trillion, thats three times UK GDP. The cost of bailing out RBS etc cost the tax payer 1 trillion. The gov can't even make ends meet without these debts as evidenced by the last budget, where it was stated that for every 3 pounds the gov. spent it needed to borrow another pound.

When the cuts to the public sector comes as it must either by the next gov. or by the IMF when we have to go to them bankrupt, then the true situation will be seen. All this wealth will evapourate overnight and the true unemployment situation will be revieled. Without all thsi gov wages and spending the econmy will slump into depression.

So Browns choice is unenviable. Keep spending and maintain the illusion and watch the UK go bankrupt. Or makes the cuts and watch the UK go into depression. Thats what happens when you are an idiot for 10 years. No easy way out.

Does this look l;ike the backdrop for a booming houseing mkt?

Someone mentioned saving?

Newcastle BS is offerring fixed cash ISA at 5%, tranfer allowed. I do not expect this product will be around for long.

http://www.ft.com/cms/s/0/4fda2cc8-525a-11dd-9ba7-000077b07658.html

You may like to take a look on the avobe linked Finanial Times´ information.

Best regards,

Maria

Interestingly there is a good article on this very site attempting to answer how long this crisis will last. IMHO its a good article for once since it attempts to put some facts to the situation, rather than just the hopeless optimistic "with any luck" type article usually written by the property people themselves.

http://www.eyeonspain.com/spain-magazine/crisis-last.aspx

Like I did it looks to the last bust in late 80s early 90s to give some clues. Also it mentions that one has to assume that since this boom was much bigger, its going to be much more of a bust.

It also says that holders of property should get realistic and plan a sensible route given the real facts and situation. This is something that I have been trying to recommend ever since I first came on the site 2 years ago.

For 2 years I have been pleading with people not to buy property in Spain. If they already own then I have been trying to get them to be realistic about their prospects. Although I may have come across as otherwise, my intention has been all good, to try and help people. Look at the untold misery on this site and hundreds of others of people naievly caught up in property investment, that made a few handfulls of people into billionaires and the great majority into poverty and stress.

Property is going to be in a bear market for the next decade at least. The irony of it is that if there was one really useful stimulus for the UK, US and Spain economies, it would be more affordable property. What greater burden on ordinary folks could there be than to spend vast percentages of someone's wages just putting a roof over their heads.

In time it will be apparent that the great bull market in property created only poverty for the masses. There was no wealth creation, only inflation and debt.

Hi TJ222,

It's really good to see you posting again.  Your posts are always an interesting read and make a lot of sense.

Cheers

David

I notice today the government are saying that 2/3rds of those on sickness benefits don't actually need them, shock horror. Its taken them 10 years to work out that a good number are scamming the system, as sickness is a better route to an idle life than the dole. The irony is that if the government cut out the scroungers, then there would be better benefits for the real sick who really need the help.

Whats really happening of course is that frigtening budget deficits and the threat of UK bankruptcy is forceing Brown to look at any area he can to raise revenue and cut costs. Stealth tax increases are no so unpopular, its a difficult route. Rather than cut government jobs the scroungers are going to get hit and about time.

However the nett effect as I stated 2 years ago will be to push up unemployment, as many of those seeking sickness will go on the dole instead by the gov. own recognition.

So look for unemployment in the UK to rise drastically towards 3 million as the benefit people get transferred to the dole and government spending is forced lower. The curtain on the wizard of OZ is being lifted back to reveal Gordon desperatly tring to pull some more leavers.

The reason for posting the previous article is that any interested in property needs to think if these factors are the good economic back drop to a healthy bull market in property?

I'd say that its a disaster. Apart form MP's and those with cushy government numbers, everyone is going to be poorer, working harder, paying more taxes and retireing later. Thats what you get from 10 years of Labour control.

Look at the headlines

Related Articles

• Three ways to reduce UK's £22bn debt

• Pensions experts predict 'horrific news' on funds

• UK can't afford another fiscal rescue, warns IMF

• Budget 2009: Britain's debt will not be under control until 2032

• Budget 2009: British taxpayers face £5k bill each due to financial crisis

• Falling tax revenues are about to balloon our budget deficit

 http://www.dailymail.co.uk/news/article-1199536/Market-recovery-hopes-dampened-warning-house-prices-wont-peak-2020.html

I noticed this article in the news today. It seems a bit of reality is creeping into the media about house prices. However what I found more useful was some of the comments by readers - 

It would also seem that folks are starting to wise up to the fact that high house prices is a terrible thing for the vast majority of the population and rather than creating wealth its just created the opposite, huge debt and now vastly reduced consumption and jobs.

One of the biggest myths I often read is that credit increases consumption and therefore is good for the economy. In reality nothing could be further from the truth.

All credit and debt does is to allow people to bring forward future consumption to today. Infact rather then increase nett consumption its just creates and artifical boom in consumption which must be followed by years of underconsumption whilst the debt is paid down. Infact becuase credit card interest for example is amoung the highest interest charged, it actually DECREASES consumption becuase interest has to be paid back. If people just saved up to buy things not only would there be no interest charged, but there could be interest earned on saved cash.

Just as importantly if people only bought stuff from saved money, there would be constant employment and really no more boom and bust.

The best stimulus for recovery and jobs in the UK and Spain would be for house prices to unwind all the excesses of the last 10 years and return to proper affordable levels, with property bought to live in, not to speculate.

People would have more disposable income to spend, there would be much more demand for houses, particularly from the youngsters who have been priced out of the market. The whole economy could then recover on a much firmer base.

Sadly in the UK, clueless Brown and co. will probably chose to save the banks and prop up prices in a mistaken belief that they can somehow re engineer the boom of the last decade. This is how you turn a recession into a depression.

TJ22

"Sadly in the UK, clueless Brown and co"

Dont mean to spit hairs but are you not being disrepectful to the standard clueless person in UK when comparing them to dumb and dumber at 10 and 11?

 Cor the IMF are beginning to sound like me, they will be calling Brown clueless soon....note "the outlook for property investment is bleak" 

Hardly supriseing really. 

IMF warns that Britain's soaring debt is 'testing the limits'

ByDAILY MAIL REPORTER
Last updated at 1:21 AM on 17th July 2009

The International Monetary Fund has delivered its sharpest rebuke yet on the ‘dramatic deterioration’ in Britain’s public finances.

In a major blow to Gordon Brown, the Washington-based fund warned the UK is ‘testing the limit of the market’s confidence’ by pushing the national debt towards 100 per cent of gross domestic product - or close to £1.5trillion.

If Britain does not do more to tackle public spending, faith in the Government’s ‘solvency’ could be damaged, it said in an economic health check.

That would trigger fears of a collapse in sterling and a fullblown fiscal meltdown.

The IMF also warned the UK could suffer an economic ‘doubledip,’ where a possible recovery is snuffed out.

House prices have yet to bottom out, despite recent signs of stabilisation, and the outlook for property investment is ‘bleak,’ the fund said.

But its central forecast is still for Britain to return to growth next year, after shrinking 4.2 per cent in 2009.

The annual report will reignite the political row over the Prime Minister’s refusal to acknowledge the need for spending cuts.

Cabinet Secretary Sir Gus O’Donnell this week joined the voices warning of deep reductions in departmental spending. Business Secretary Lord Mandelson and Chancellor Alistair Darling have both said plans will have to be tighter.

By contrast, Mr Brown has denied the need for huge cuts in expenditure, although he yesterday acknowledged the need for ‘tough choices’.

Shadow Chancellor George Osborne said: ‘The IMF could hardly have delivered a more damning verdict on the Brown years - and it vindicates Conservative warnings about the debt crisis.’

A Treasury spokesman said: ‘The Budget set out the Government’s projections for the public finances, which were based on cautious assumptions.

‘It also set out plans to halve the deficit over four years and bring down borrowing in the medium term.’

sound like the sound economics for a booming property market.