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Spanish vs US Housing Bubbles

Margaret Womble


I am comparing the housing bubbles that occurred during the 2000s in both the United States and Spain.  I will not only focus on the similar patterns that existed during the bubble, but also on how Spain’s classification of mortgage loans as recourse debt has made them worse off today.


In Sarmiento’s paper, Regime changes in sub-prime margins under the US housing bubble, he explores the conditions that led to the 2008 pop of the housing bubble in the United States.  He points out the sharp decline in interest rates, despite the credit risk associated with the increase in subprime loans.  The lenders, therefore, were overly optimistic, as they provided mortgages to risky borrowers who would ultimately default, putting both themselves and the lenders in financial trouble.

The paper, Asset pricing and the Spanish housing market by Laura, Christos, and Guirguis focuses on the escalating housing prices in Spain in the 1990s and 2000s.  The paper was written before Spain fell into a recession, but speculates that housing prices were overvalued and displayed characteristics of an asset bubble.

Bockenek’s paper titled The speculation bubble on the real estate market in the USA in view of selected overinvestment theories highlighted a key characteristic of the housing bubbles in both Spain and the US.  If prices are increasing solely due to speculation and not due to real factors (inflation), it is likely that a bubble exists.

The paper (Un)sustainable territories: Causes of the speculative bubble in spain by Romero, Jiminez, and Villoria discusses the aftermath of the housing bubble in Spain.  After a huge dependency on the housing/construction market, Spain’s economy is in trouble as this market has become useless.


I have gathered data, mainly from the Federal Reserve Bank of St. Louis, on both Spain and the United States.  The Spanish data has been more difficult to compile.  The Spanish National Institute of Statistics has some data, but much of it is very recent and basic. In comparing the housing bubbles, I have gathered data on the US and Spain in the following areas: Housing Price Indices, Residential Construction, Interest Rates (Federal Funds Rate, Euribor), and the rate of change in CPI.  In looking at the consequences of the bubbles based on the classification of mortgage loans as either recourse or non-recourse, I have data on the Household Debt to GDP as well as measures of investment (Gross Private Domestic Investment, Total Investment as a % of GDP). For simplicity, in this paper I will compare the trends in the data to observe how Spain’s classification of mortgages as recourse debt has made them worse off today.  However, to accurately portray this relationship, I would set up a regression that looked at Private Domestic Investment against things such as household debt, interest rates, and a dummy variable for non-recourse debt.

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