Spain's Housing Bubble Bursts

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Okay. So Apple's doing pretty well, although the economy and this weak economy is still an overriding concern for many Americans, and also for many people in Spain. In the last decade, housing prices there tripled as buyers ignored warnings of an overheated market. Now the housing bubble there has burst, and many Spanish homeowners are deeply in debt.

From Madrid, Jerome Socolovsky has this report.

JEROME SOCOLOVSKY: In this development outside Madrid, Rows and rows of identical brick homes stand empty. The white metal shutters are shut. Cinder block walls enclose barren yards.

(Soundbite of dog barking)

SOCOLOVSKY: Guard dogs protect the few homes that appear to be inhabited. In front of one, a few men fix the engine of an old car.

Unidentified Man #1: (Spanish spoken)

Unidentified Man #2: (Spanish spoken)

SOCOLOVSKY: It's an unusual sight in a country where brand new Volvos and Mercedes SUVs have popped up everywhere. Many were bought in a shopping spree that was fueled by debt in one of Europe's biggest housing bubbles. One of the men under the car's hood happens to be a developer.

Victoriano Martinez(ph) fondly recalls what his business was like just a couple of years ago.

Mr. VICTORIANO MARTINEZ (Developer): (Spanish spoken)

SOCOLOVSKY: People would come and say, I'll take it. Here's 100,000 euros down, he says. You built one house and you sold it. You built it another, and you sold it, too. But now, Martinez says, everything is at a standstill.

Mr. MARTINEZ: (Spanish spoken)

SOCOLOVSKY: At the moment it's nada, zero. I have finished homes, but nobody even comes to see them, he says.

The rapid development has left scars everywhere. From Barcelona down to Gibraltar, Spain's once pristine Mediterranean shore has become an almost continuous wall of concrete. Inland, bulldozers have torn into national parks and nature reserves to create new developments.

But now, consumers themselves are struggling to pay the mortgages on those properties. No one talks about subprime loans in Spain, but banks did lend recklessly. Now many homeowners are facing soaring monthly payments on variable rate mortgages.

Danielle Vega(ph) of the Spanish Consumers Union says people are borrowing from family members and taking out new loans to service debt from that shopping spree.

Mr. DANIELLE VEGA (Spanish Consumers Union): (Spanish spoken)

SOCOLOVSKY: There was a certain delight in buying and spending, he says. The economy was going well, and people were happy to go into debt, buying cars, computers and whatnot.

One analyst has said credit fueled consumption in Spain in recent years was like the U.S. on speed. Now the withdrawal could be painful. Construction accounts for 20 percent of Spain's economy. The human resources firm Adecco predicts that more than a quarter million jobs will be lost this year in Spain's building industry.

The recently re-elected Prime Minister Jose Luis Rodriguez Zapatero is promising urgent measures to rescue the construction sector. They include public works projects and retraining jobless workers.

(Soundbite of dog barking)

SOCOLOVSKY: Back at the new housing development, self-employed contractor Jose Munoz has been struggling to find work these days.

Mr. JOSE MUNOZ (Contractor): (Spanish spoken)

SOCOLOVSKY: He says he spends his time making improvements on a house he bought 18 months ago.

Mr. MUNOZ: (Spanish spoken)

Mr. MUNOZ: When I bought this place, there was an enormous boulder over here he says.

Munoz brought in heavy machines to make a driveway. In the backyard, he's halfway done building a huge pool out of stone with his own hands. Now he needs cash to finish these projects. He wants to borrow more money against the value of the house, but the bank says it's worth less than what he paid for it.

For NPR News, I'm Jerome Socolovsky in Madrid.

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