Spain to elect new leader on Sunday; housing,
Friday, March 7th, 2008LONDON (MarketWatch) — In echoes of the election taking place across the Atlantic, Spanish voters on Sunday will decide their next leader at a time when the housing market is showing great strains, weighing down what had been a rapidly growing economy.
Election polls show a slim lead for the Socialist party of incumbent Prime Minister Jose Luis Rodriguez Zapatero over the conservative Popular Party, headed by Mariano Rajoy, though there are enough doubts about voter turnout that the election isn’t a foregone conclusion.
The stock market, of course, hasn’t waited for the vote itself.
The IBEX 35, Spain’s main stock index, has dropped nearly 20% over the last three months, making it one of the worst performers in Europe.
Bond investors aren’t confident either — the spread between yields on 10-year Spanish and German bonds has widened substantially over the last few months.
That’s not all the fault of Zapatero, who was elected in 2004 just days after the terror attack on Madrid that his rivals initially blamed on the Basque separatist group ETA.
Much of the problems in Spain’s economy can be tied to an overbuilt housing market, founded on low euro-zone interest rates at a time when the country’s own economy was roaring along.
According to data from Spain’s central bank, the return on housing (rents plus house price growth) dropped to 6.8% in the fourth quarter -from 15% in 2005. The Royal Institute of Chartered Surveyors warned this week that Spanish prices may fall “significantly” this year.
Worries about house prices have derailed stocks in construction, property and banking sectors — with problems made worse by the cross-holdings that these firms possess.