Spain and UK likely to suffer most in housing downturn

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Standard and Poor's says these countries’ housing markets have been expanding longer, leading to painful corrections.

3 April 2008

MADRID - Ratings agency Standard and Poor's cited Spain and the United Kingdom as two of the countries likely to suffer most in a European housing market downturn.

"In those countries where the housing bubbles have been expanding for longer, Standard & Poor's believes the corrections could be severe and painful," S&P said.

The agency noted that sales of completed homes in Spain in January fell by a staggering 27 percent while loans to home buyers dropped by 28 percent.

S&P said housing starts remained at very high levels of 650,000 units in 2007, but noted building permits dropped 40.6 percent in the 12 months to September 2007.

"The sudden and brisk drop in permits in Spain, if confirmed in the next few months, would indicate an upcoming major collapse in housing starts," S&P said.

After rising by well over 150 percent since the start of a decade-long boom, house price inflation slowed to 4.8 percent in the last quarter of 2007. S&P is expecting house prices either to remain stable over the next two years or fall by 5 percent annually.

S&P said the impact of falling investment in housing is "particularly worrisome in Spain as it accounts for 10 percent of GDP”.

[El Pais / Expatica]

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