The Spanish real estate sector has been red hot for the last decade. Real estate prices in Spain have almost tripled since 1997. Although Europe as a whole has seen impressive growth in the sector, Spanish companies seem to have benefited the most, outperforming the Bloomberg Europe Real Estate Index for the last four years.
The winning streak, however, has come to violent and sudden end, with real estate and banking stocks falling dramatically this week. The sell off in Spanish real estate and associated stocks was spawned from apprehension surrounding building company Astroc Mediterraneo SA and was amidst fears of a property crash brought about by a market slowdown due to rising interest rates
Like the sector as a whole, Astroc Mediterraneo has been on a tear since it had its IPO last year. With an initial offering price of €6.40, the share prices have soared to a high of €72.35. Within the last week, however, shares of Astroc Mediterraneo have experienced a whopping drop of 66 percent of their value. Similarly, shares of companies like Grupo Inmocaral, Immobiliaria Colonial, and Montebalito have experienced significant decline in their share prices. The effects of this decline, however, may extend far beyond the real estate sector, as construction represents 11 percent of Spanish GDP. A downturn in the real estate could spell out a major slowdown in the economy as a whole and could mean the loss of some 200,000 jobs associated with the sector.
The aftermath of the bursting bubble in the Spanish market might be a sign of what is about to happen on this side of the pond, particularly in the United States. Yesterday, the National Association of Realtors released the existing home sales number for March. The number was a great surprise to many, with sales dropping more than they have in almost two decades. The 8.4 percent decrease in sales was also accompanied by the 8th consecutive drop in home prices. With more and more news like this, the US will also feel the ripple effect throughout its economy of its own bursting ‘burbuja’.
