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Now may be the best time in history to buy a house… in Europe.
The Wall Street Journal reports homeowners’ mortgage payments in Portugal and Spain are plummeting.
One man saw his payment fall from the equivalent of $470 per month to about $245 now.
It’s due to the European Central Bank’s (ECB) manipulation of interest rates into negative territory (Tom talked about it here).
These mortgages have interest rates tied to an industry standard called the “euro interbank offered rate” (the “Euribor”).
Over 90% of Spain’s 2.3 million housing loans peg their adjustable-rate mortgages to a certain percentage of the Euribor. That percentage is called “the spread.” The Euribor plus the spread determines the interest rate a person owes.
Or should owe. The ECB’s new round of money printing (“quantitative easing,” in banker speak) last month has driven European interest rates negative. As a result, some lenders are now required to credit this negative spread to their borrowers.
It’s lowered some mortgage payments by almost 50%.
Banks can’t stay in business by paying people to take out loans… or by charging people to keep their money in their savings accounts. Depositors would do better to stash their cash under their mattresses.
Sooner or later, the market is going to realize this situation is unsustainable.
We can’t know when that will happen. All we can do is avoid participating in the absurdity. Stay away from any form of lending in euros.
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