People are really excited in Madrid about the "Burbuja Inmobiliaria". First off, this term is of course borrowed straight from the English. We have had some experience with the "Real Estate Bubble" in Los Angeles - Hell, the term was probably invented here.
Check out this link to Idealista - 548 comments to this story! People are freaking! Some Spanish guy in charge of something, who of course can't really know what is going to happen, says that prices should be going down a lot more by now so that there will be a "soft landing" of the bubble. I wonder where he heard about the soft landing idea?
The last big run-up in Los Angeles real estate prices happened in about 1986 - 1989. People thought it would never go down. It was the same old story, building like crazy, houses worth more a week after you bought, etc. Nobody saw what was going to happen. Then, L.A. lost a bunch of jobs in Aerospace due to the end of the cold war. The market tanked, and houses did lose value, maybe 20% or so depending on where the house was. People who overextended themselves with loans, or who took money out of the homestead to go on vacation and buy cars (stupid), lost their houses - big surprise! This lasted until about 1995 - when prices started going up again and they kept on going.
Now house prices in L.A. are through the roof but holding, however with less sales - sound familiar? Everyone in L.A. and Madrid are wondering what will happen next, but they are much more agitated in Madrid. By the way, all the losses from the 1989 bubble in L.A. were completely erased and house values are much higher than before.
What's happening is the Spanish are in shock at the changes in their country and their city. Pisos (Spanish Houses) were way undervalued for way too long. In 1987 a modest piso in the Centro probably cost 5 - 7 million Pesetas, about $41,000 to $58,000 at 125 pts. to the dollar. In 2001 a modest piso cost about 22,000,000 Pesetas, about $115,000 at 190 pts. to the dollar (the dollar was real high then). Now, that same apartment costs about 50,000,000 Pesetas or 300,000 Euros.
The Spanish also are grappling with another "new" phenomenon - the mortgage. Before, nobody hardly ever had mortgages Spain. People paid cash. They saved their money or got it from a relative. Mortgages were very rare and with nasty interest rates - like 17%, no kidding! The 30 year mortgage is something they have a hard time wrapping their minds around too. Being in debt for so long for a house! Que barbaridad! Of course in the US it has been common for YEARS.
Dear Madrilenos - I'm afraid the old days are gone. Your city is a capital of a major European nation. People want to live there and more are coming. It is very nice and tons of cash is being poured into it by the EU. There is great transportation, entertainment, people, jobs, plazas, you get the idea. Owning part of it is worth Euros - and I say lots of Euros. Will prices go down? Of course! They will go up and down. But piso prices will always march upwards over time barring some nasty disaster or war.
The bottom line is I don't really know what is going to happen. But I do know that if the bubble bursts you gotta hold on until piso values come back - I believe they will - I just don't know how long that will take.