Tuesday, April 24, 2007

Spanish Housing Bubble Bursting?

Well, not yet. But increasingly investors fear it will. And at any rate, the rate of house price increases is certainly slowing. The 12-month increase in house prices was just 7.2% in March, half of the rate of increase in previous years.

I've dealt before with the issue of the Spanish housing boom. Clearly, some of it has been fueled by ECB holding interest rates far too low for far too long. And as interest rates are now rising this implies that a housing bust is a real risk. However, as I wrote then, the strong underlying demand because of a large influx of foreigners means that the severity of any bust will be limited. Renewed strength in other European economies, particularly Germany, also means that the spill-over effect to the overall economy will be limited.


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