Empirical Applications Based on Survey Data
Chapter 5 The Euro and the Spanish housing bubble
5.1 Introduction Spain’s economic crisis starting in 2008 clearly has to be seen in the context of the world economic crisis triggered by the burst of the U.S subprime hous- ing bubble.1 However, especially the Spanish pre-2008 housing boom seems to originate – at least partly – east of the Atlantic Ocean. Besides govern- mental regulations, which for example include that 15 percent of mortgage payments are deductible from personal income, cheap credit probably played a major role for the recent housing boom in Spain. Figure 5.1 shows the development of three mortgage interest rates in Spain.2 Whereas the average mortgage rate was between 10 and 12 percent for 1995, it dropped down to about 5 percent in 1999 and remained at a relatively low level. Additionally, Table 5.1 shows that at the same time the credit conditions were associated with a sharp increase in the volume of house purchase loans. From 1997 to 2007 the volume of house purchase loans more the sextupled from 104 Billion Euro to 645 Billion Euro. Weighted by GDP this value almost tripled form a ratio of .21 to .61. 1 Bean (2009) oﬀers an excellent overview about the causes of the ﬁnancial crisis and the subsequent recession. 2 The ’CECA’ Reference Mortgage Interest Rates is an average interest rate based on personal loans and mortgage loans provided by the Spanish Confederation of Savings Banks. The ’IRPH’ Mortgage Interest Rate (Banks) is the obtained average mortgage interest rate with a duration of more than three...
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