Home prices in Spain more than doubled over the past 10 years, but the average price of an existing home has fallen slightly since July, according to real-estate agent facilisimo.com. France experienced its first quarterly home-price decline in almost a decade in the third quarter, according to its federation of real-estate agents, while Irish house prices in August were 1.9% below the year-earlier level.
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Low interest rates were a potent stimulant in Spain, which experienced one of the biggest housing booms in Europe. The European Central Bank, mindful of slowly expanding, big economies on the Continent, kept interest rates low for much of the first part of the decade -- often lower than the rate of inflation in Spain. That encouraged Spaniards to borrow money.
Last year, Spanish families on average paid six times their annual salary to buy a home, compared with 3½ times salary in the late 1990s, according to the Bank of Spain, the central bank. Immigration and an influx of wealthy tourists scooping up coastal property fueled skyrocketing prices.
Construction accounts for about 10% of Spain's annual output, compared with about 7% in the U.S. Last year, 726,000 new homes were built in Spain -- more than France, Germany and Britain combined, even though those three countries together have more than five times as many people. Housing helped push Spain's economic growth to 3.9% last year, its fastest rate since 2000.
When a central bank lowers interest rates to the point where they are literally giving money away, assets whose value is based on leverage increase in value. It's that simple.
