Analysts Liken Spain’s Soaring Property Values to the Florida Real Estate Market

In Spain, real estate prices have risen 120 percent since 1998, yet the country’s experience is far from unique. The rise in housing costs across the developed world prompted The Economist recently to speak of a globally coordinated hike. But European Central Bank president Jean Claude Trichet specifically cited Spain last week when he warned of the alarming breach between salaries and housing prices — and the potential fallout therein.

The key factor that sets Spain’s property market apart from that of other developed countries is tourism. In this respect, global analysts liken the Spanish conditions to the Florida housing market. Florida housing is in high demand from speculators and second-home buyers, and the state is one of America’s leaders in terms of tourism. With investors of all kinds of the mentality that prices will not fall, Florida median prices have skyrocketed since 2000 and many markets have become overvalued.

But, as we have seen with Florida real estate, experts in the Spanish market foresee a gradual leveling off of prices as interest rates rise. Some analysts are less optimistic, urging caution regarding a slowdown in the country’s economic growth over the course of this year and 2007. The Association of Property Developers says it expects a fall of 5-10 percent in housing starts for 2006, while the Bank of Spain notes that savings are falling while the mortgage burden is rising.

“Price rises here are such that nobody can deny there is a bubble,” said Stan Dickens, an expert on the Spanish property market, and a member of the Royal Institution of Chartered Surveyers.