The Wind Blows Mostly from Spain

Years ago, I vacationed in Spain….off on one of the islands that make up the Canary Islands. It’s kinda like the Hawaiian Islands….tropical in nature, lots of tourists, booze flowing continually, and a fun atmosphere.

Over the two weeks I was there, I noted on various brochures….this wonderful opportunity to buy a seaside house. These were all small places with 30 x 40 foot yard in the back (almost nothing), a two-bedroom situation for living, and enough parking for one really small car. The gimmick here….was to attract British and Germans into spending roughly $120k (which would be financed through the local Spanish bank).

A guy from Bama would look at a house like this, and likely come to the conclusion that it was barely worth $50k at the most. Cheaply made….it wasn’t a place that would last more than thirty years max. Even a house trailer would have been a better deal.

Up the street….was the better places….for $200k and they had a small pool, and maybe a 100 x 300 foot backyard. Again, it was all enticing for someone to vacation there, enjoy the summer heat, and the flowing nature of the Spanish wine and booze. A guy could have a pretty good time in retirement with a deal like this.

So plenty of folks came and got mortgages through the local banks or cajas. Well….kinda like Tucson and Florida houses….this Spanish market has crashed. If you read through the local business papers….Spain is coming up next behind Greece. Almost every Spanish bank is in dire straits. They have tons of property that have been dumped back onto them…..with no one interested in buying the property with higher down-payments.

With the best guess of thirty to forty percent cuts on property value…..there’s good deal sitting there. But they will be sitting there a long time.

What happens now? Well….this becomes interesting. Greece had some really special problems, with major corruption driving its government finance situation. Spain? Totally different, with banks needing a massive hand of assistance…..likely going well beyond what a government could handle. The banks could write off the properties they hold…..but they’d revalue the whole system, and collapse would be necessary in some cases.

So over the next two months….as you sit and watch the poor CNN and ABC folks….never able to explain how this all started……you kinda know how it began now. There were some mighty fine little retirement communities along the coastline, which would entice any guy…..but these folks just never had adequate money to pay for what they bought. And now, the bank holds some mighty fine little retirement communities along the Spanish coast, without any hope of dumping them.