Spanish mortgage crisis could harm future generations

Millions of Spaniards are trapped in debt, stuck with overpriced homes that are keeping household spending low, unemployment high and international investors nervous.

The bursting of Spain’s property bubble has left few winners bar those who have scooped up a bargain at forced auctions of luxury flats in deserted housing estates on the popular coasts. Most Spaniards have ended up feeling like losers after taking advantage of a mortgage bonanza in the housing market boom that burst in late 2007.

“There is an entire generation of young Spaniards with a millstone round their necks that will have to work their whole life to pay for houses now worth half what they bought them for,” said Enrique Quemada, head of One to One Capital Partners.

Financial markets have kept Spain under intense scrutiny since the much smaller Irish economy — likewise crippled by a burst housing bubble — was forced to take an international bailout last year.

The premium that Spain has to pay to borrow on the bond markets has since eased to around 2 percentage points more than the euro zone benchmark, from just over 3 percentage points at the height of market doubts in November.

Spain’s efforts to contain its banking sector’s problems have helped. Even so, Spain’s economy could be held back for years by the mortgage debt burden. House prices have fallen 17 percent since late 2007, according to the Bank of Spain, which says they may have some way further to fall.

Source: Kyero