Housing Crisis in Madrid Spain

I have a dream to someday own a flat here in Madrid City. It wouldn’t have to be in the Old downtown – although that’d be nice in concept. But where would you park if you own a car? Nor would my would-be house have to be within the M30 inner circular city highway loop. But it would be in the city of Madrid itself and not in the suburbs. Afterall, HOW could I maintain my MadridMan persona if I didn’t live IN the city of Madrid?? (okay, now’s not the time to ask me now about BarcelonaMan or GranadaMan, okay?)

First, let me clarify for those not familiar to what “houses” are in cities like Madrid, Barcelona, Rome, Athens, and the like because it causes a lot of confusion with Americans with whom I talk on this topic. Because when they hear “house”, they think a single structure home with four sides, one to three floors, a driveway & garage, maybe a porch or deck, and a yard. In these big European cities – much like in New York City – THESE kinds of “houses” don’t really exist except for the richest of the rich.

“Houses” in European cities are “flats” or as called by many of my American friends back home, these are “apartments”. But the word “apartments”, to me, is deceiving because they’re not always rental properties which, to me, are what apartments are. “Houses” here are one unit within a multi-level, multi-unit building where residents enter their residences through one door on a floor where there may be several other doors leading to neighbors’ residences. These residences may have 1, 2, 3, or more bedrooms, 1 or 2 or more bathrooms, sometimes a basement garage (but they’re rare, except in the newly built buildings), sometimes a balcony or suspended terrace, sometimes there are elevators but not always, and oftentimes your out-the-window view is that of the wall of the building from across the street. THIS is a “house” here in Europe. Stand-alone “houses” as we know them in America are called “Chalets”, a word in many parts of the world refer to a kind of “Swiss Chalet” or a house in the country.

So anyway, for the last year or so I’ve been following the posted flats on Idealista.com, bookmarking flats which fall into my amenity and price range. Each month I check on those bookmarked flats to see if they’re still available and/or if their prices has changed.

In about half of the cases, the prices fall monthly as owners find their homes are not selling at all or the market value is dropping below the asking price for the house. Sometimes prices fall only 5,000 Euros but in some cases they fall by 10 or 20,000 Euros! That’s incredible!!

This is the result of the housing crisis in Madrid, in Spain, in Europe, and throughout the world. I love finding a house online, bookmarking it, and then, 6 months later, seeing that its price has dropped by 50,000 Euros!! And the prices keep dropping. Sure, there’s a bottom to this economic crisis. But “the end” will not likely parallel the recovery of the housing market. There will be significant delay. So even if the economy hits bottom and beings to improve tomorrow, the house price will likely continue to drop for a considerable period of time. Am I too optimistic? If so, please do tell me so.

Just today I toured a house for sale, a very nice house, but clearly out of my price range. I wanted to know how the house looked now and will ask the owner in 6 months time if they have dropped their price. I am nearly sure they won’t be able to sell it at their asking price but some people still think they’re living “in times of old” where you could ask nearly any price in Madrid and get it because the prices were rising so fast and a lot of people made a lot of money. Now the opposite is true. The house prices are dropping like stones and no one is buying because A) potential buyers have lost their jobs, B) banks won’t lend the necessary amounts, C) buyers are waiting for the prices to drop even lower, and D) potential buyers can buy a new house until they sell their old house – which they can’t do unless they drop the asking price below what THEY paid for the same house just a few years before, and no one wants to do this.

So is the end in sight? Not yet, I don’t think. Those who have cash ready to spend – and/or those who have banks ready to lend – are going to get some real bargains. But are they really “bargains” or are they merely a stabilization to fair pricing within the market itself? For years house prices were so unnaturally inflated and houses were still being snatched up by speculators and investors. Not anymore. Now those speculators are stuck, filing for bankruptcy, or just waiting for the next housing boom.

Are you ready to buy? What’s stopping you?

 
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5 Responses to Housing Crisis in Madrid Spain

  1. journeytofrugaldom.wordpress.com says:

    I was just down to the visit the Wall of Concrete (aka the coast) and while it wasn’t as bad as everyone makes it out to be it is still massively overbuilt. We stayed in a beautiful complex of about 600 units (and one of perhaps 50 or 60 along the Duquesa Golden mile) and it was like a scene out of Omega Man, I mean empty! and even beyond the complex just no traffic or people. The complex we were staying in was only 40% sold and those units were only occupied 1-2 months a year. And as I mentioned in that one small area I counted 25 complexes before giving up. And this was just one very small stretch of the Spanish coastline.
    As to Madrid read somewhere that the average Spanish household needs to spend 75% (or a similar number like that) of there income to afford a place here, it is any wonder that no one can get a mortgage.
    Personally the Wife and I have found a beautiful place to live out in the Sierras and we are renting because we gave what we thought was a reasonable offer and were turned down flat, his comment, he could sell it tomorrow if he dropped the price (it was a rent to buy option)so we are renting. Since none of the units are selling I figure he will go bankrupt in 2 years when the loan is due, at that point we’ll give the bank a cash offer, of course much lower than what we offered him.
    As an aside rents are also dropping and paradoxically, it is getting harder and harder to find a landlord who is will to rent out a place due to the fear of non paying tennats. Most are demanding 6 months or more desposit and even then holding out.
    BTW as you can see I figured out how to log in, would be nice if you could comment without logging in, I’m sure it would attract more commenters.

  2. MadridMan says:

    Thanks for your comment.
    Regarding comments, I’m not happy about it but requiring registration to comment does filter out A LOT of SPAM comments. But, as you said, it also deters comments to begin with. Not much I can do with that as this is the way Movable Type operates. I am looking into the possibility of being able to transfer all blog entries to a WordPress format, however. Not sure if I can yet, though. That’d make it easier for comments.

  3. journeytofrugaldom.wordpress.com says:

    just after posting my comment I came across an interesting article
    Barcelona Rents fall more than 20%
    http://www.spanishpropertyinsight.com/buff/2009/07/barcelona-rental-prices-fall-more-than-20pc/
    Same thing in Madrid, it’s quite common to negotiate a rent reduction when moving, we did it and several friends of ours have. The flip side is that if your unemployed you are unfortunately locked out of the rental market as landlords would rather leave a flat empty than risk getting a dead beat tennat.

  4. Sally says:

    Its so easy to login- and you can even get your pc to remember the details so that you don’t have to do it every time – why are people so against logging in??

  5. osomajor says:

    The “flats” you describe sound like condos or maybe even lofts. Here in Southern California we went through a craze converting old office buildings or apt. buildings into lofts at a very premium price during 2002-2006 realty boom. A one bedroom loft in downtown LA was going for 350K or more, depending on the location. Now, they can’t sell ’em. There’s such a glut of unsold condos, lofts and townhouses that were built during this time that many locations are virtually empty! Many are now being leased. I read an article about a week ago that in Miami, there are high rise condo buildings that are completely empty due to the realty slump. There was one family that bought a unit in the middle of a high rise and they are the only people living in the entire building. No neighbors, no noise, the lobby is totally empty with no security either. The elevator works but the family that lives there worry that strangers can come in and vandalize the building. A friend of mine bought a house in Anaheim Hills for just under 300K in 1998 and at the peak of the housing boom in 2006 it was worth 950K. He’s been trying to sell it, he and his family want to move out of state. Well, he can’t sell it. No one wants to pay what he wants for it. He’s gone as low as 500K and had only one offer but the deal fell through. So, he’s pull it off the market and decided to stick around until whenever the realty crunch eases a bit. I think he’ll be waiting a long time in my opinion.

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