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Wall Street Journal
September 11th, 2006
Spain's Housing Boom Faces a Test
Economists Worry About a Hard Landing and a Resulting Ripple Effect
House of Cards?
Economists fear Spain's resurgent home-building spree (right) could bring a sharp price correction - and portend a bust that will undermine the broader economy.
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MADRID -- A decade of red-hot growth in the Spanish housing market fueled a jump in such things as jobs and consumer spending, turning Spain into one of the fastest-growing countries in the euro zone. But now, economists say the real-estate boom is coming unmoored from the economic fundamentals that once drove it, and they worry the market is headed for a hard landing that could have repercussions for the rest of the economy.
Incomes are no longer rising, but home prices continue to soar. Meanwhile, interest rates have started to head higher, making mortgages more expensive. Housing starts jumped 15% in the first half, while more than 3.5 million homes remain empty as owners wait for the value of the house to appreciate
"Spain is headed for a first-class beating, and the only question now is when it will come," says Lorenzo Bernaldo de Quirós, an economist and head of Freemarket International Consulting in Madrid.