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MADRID, Spain - In Terrassa, near Barcelona, squatters, known as okupas, are occupying an empty, new apartment building.

They have nowhere else to live, so they live there, illegally. One of the squatters, a father of two young children, said it’s their only choice.

There are lots of people that are occupying, who are kicking the doors of the buildings down because they don’t have another option, Guillem Domingo, who heads a group called Platform of People Affected by Mortgages, said.

Like the other squatters in the building, 35-year-old Nicole Polanco is unemployed, having lost her job as a nurse’s assistant.

You can’t just live on the street, she said. There are so many empty buildings that will never have occupants, whether through selling or renting.

An Economic Abyss

Spain is not Greece -- yet. It is the fourth largest economy in Europe. But like Greece, Spain’s middle class is falling into its own economic abyss.

The virtue of home ownership was pushed on Spaniards by the Spanish government and until recently stood at 80 percent, the highest in Western Europe.

The bottom began to fall out of the real estate market in 2007, with official figures showing 25 percent in housing value erased in the subsequent five years.

But observers say it’s worse than that. And the depression underway in Spain has pushed everything over the edge.

Spain, not only the banking sector but also the government sector, is about to go into bankruptcy, economist Juan Ramon Rallo, at King Juan Carlos University in Madrid, said.

A Second Greece?

Much of the media portrays Spain’s crisis as only a banking crisis from the collapse of a real estate bubble. There are 2 million unsold new housing units.

The number of bad loans has reached an 18-year high, with one collection agency sending out debt collectors dressed as monks to try to appeal to the consciences of the debtors in this historically Catholic nation.

But Spain’s problems are much deeper than a banking crisis. Unemployment is almost 25 percent, with an astonishing jobless figure for adults under 25 of 53 percent. The economy has shrunk for the third straight quarter and vital capital is fleeing the country.

Experts are worried that Spain will become Greece.

With one in four unemployed, more and more families are losing their homes. Some groups, like Platform of People Affected by Mortgages, are trying to prevent evictions and force banks to allow the homeless to live in unsold housing.

Mortgage Fiasco

Many Spaniards have signed mortgages they must pay off, even after they’ve lost their home to foreclosure.

By law, when a home is foreclosed in Spain, the owner owes mortgage payments until the house is re-sold by the bank.

Spanish banks are reportedly unloading repossessed properties for 60 percent of the original mortgage, and the first homeowner then owes the difference.

In June, Spain’s Parliament rejected a law that would have allowed about 300,000 homeowners who have had their homes repossessed to be free of their debt. The banking industry warned this would collapse the financial system. They were probably correct.

Spain’s mortgage rules mean financial ruin for many, including one woman CBN News talked to in Terrassa who was fighting to save her home.

I will fight until the last moment. If they take my house, I’ll go back into it because if I have to pay the mortgage for the rest of my life anyway, then I will stay in my house and they can throw me in jail, she said.

Disastrous Spending

Rallo said much of Spain’s suffering could have been prevented if the Spanish government had not gone on a spending binge during the boom years near the turn of the century.

If we hadn’t increased spending between 2001 and 2007, we would not have a deficit now, even with the banking crisis and high unemployment, he said.

During the good years, the Spanish government was also blowing $15 billion annually on a disastrous green Jobs program that managed to increase unemployment by raising the cost of energy.

Now Spain is paying the piper, or, Spanish families are paying. After he lost his job, Manuel Barrue fell behind on the mortgage of his family’s dream home.

After CBN News visited them in the little town of Vila-Real near Castellon, they lost their home but are stuck with a mortgage they still have to pay.

Barrue’s dream of a home for his wife and daughter is long gone, perhaps gone forever.

We were thinking this would be our house for life, he said. But it’s not and there’s nothing we can do. God will say what happens.

****

The Spanish property bubble refers to the massive growth of real estate prices observed, in various stages, from 1985 up to 2008 in Spain[1][2][3][4][5][6][7][8][9]. The housing burst can be clearly divided in three periods: 1985-1991, in which the price nearly tripled, 1992-1996, in which the price remained somewhat stable, and 1996-2008, in which prices grew astonishingly again. Coinciding with the late 2000s crisis, prices began to fall.

House ownership in Spain is above 80%. The desire to own one’s own home was encouraged by governments in the 1960s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Further, the oldest apartments are controlled by non-inflation-adjusted rent-controls [4] and eviction is slow, thereby discouraging renting.

As feared, when the speculative bubble popped Spain became one of the worst affected countries. According to eurostat, over the June 2007-June 2008 period, Spain has been the European country with the sharpest plunge in construction rates.[10] Actual sales over the July 2007-June 2008 period were down an average 25.3% (with the lion’s share of the loss arguably happening in the 2008 tract of this period). So far, some regions have been more affected than others (Catalonia was ahead in this regard with a 42.2% sales plunge while sparsely populated regions like Extremadura were down a mere 1.7% over the same period).[11]

Banks offered 40-year and, more recently, 50-year mortgages. Unlike Ireland, Spanish labour costs did not track house market rises[citation needed]. While some observers suggest that a soft landing will occur, others suggest that a crash in prices is probable. Lower home prices will allow low-income families and young people to enter the market; however, there is a strong perception that house prices never go down. As of August 2008, while new constructions have come virtually to a halt, prices have not had significant movements, neither up nor downwards. The national average price as of late 2008 is 2,095 euros/m2[12][13]

Unlike much of the United States, Spain does not recognize mortgage loans as nonrecourse debt. Since most foreclosures only accounted for 60% of the loan, those evicted have large debts for property they no longer own.[14]

According to the reports of the Bank of Spain, between 1976 and 2003 the price of housing in Spain has doubled in real terms, which means, in nominal terms, a multiplication by 16. Spain was ranked third or fourth among OECD by house prices growth. According to the Bank of Spain, in the period of 1997—2006 the price of housing in Spain had risen about 150% in nominal terms, equivalent to 100% growth in real terms.

One of the main effects of this situation is the growth of household debt. Since usually the purchase of housing, whether to live or to invest, is made from mortgage loans, the price increase implies an increase in debt. The indebtedness of the Spanish tripled in less than ten years. In 1986 debt represented a 34% of disposable income, in 1997 it rose to 52%, and in 2005 it came to 105%. In 2006 a quarter of the population was indebted with maturies of more than 15 years.[15] From 1990 to 2004, the average length of mortgages increased from 12 to 25 years.[16] The Bank of Spain reported that household savings in 2006 has been overwhelmed by debt.[17]

In fact, the Bank of Spain has warned each year about the high indebtedness of Spanish households,[18] which according to the institution was unsustainable. The private debt stood at 832.289 billion euros at the end of 2006, an increase of 18.53% year-on-year, and reached 1 trillion euros by the end of 2010.[19]

The Bank of Spain also warned on the excessive indebtedness of the construction industry.[20]

President of the Chambers of Commerce of Spain, Javier Gómez Navarro, said at an event organized by the Association of Financial Journalists, entities never recover 30% of the debt owed to the housing sector. According to the Bank of Spain, this debt amounted to 325,000 million euros as of December 2009 was 96.824 million in bad loans.[21] The president of the Chambers regretted that the Spanish financial system did not admit the impact of the crisis on their assets, as well as the Bank of Spain, which affirmed that it was the responsibility of the whole financial sector: In Spain, it was never wanted to recognize that the financial system was not in good shape, as this would have forced the banking sector to start re-capitalising policies. The goal of the state’s policy has so far been to gain time, to start a mild bank recapitalisation, but time is now running out .[22]

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