Spain’s home prices peaked later, and higher, than U.S. home prices. That spells double trouble for the Spanish economy, which will likely plummet longer, and harder, than our own.
You can see Spaniards saw the value of their homes triple from 1996 to 2008. Since then, home prices have fallen by over 20%. And they won’t stop there. Spanish home prices have in store another 35% drop … just to catch up with U.S. home prices. And that assumes the U.S. home price index doesn’t fall any further, which it will.
Are home prices in both countries headed for the same fate? Probably. Nearly all asset bubbles return to the prices at which they started.
But the path to rock bottom will likely be different in Spain and the U.S. In terms of monetary policy, we still have our independence, while Spain is locked into the euro and will be pressured to adopt a myriad of one-size-fits-all rescue plans.
We’ll see how this house of cards unfolds.