Government confirms property boom is over
Government figures to show that house prices have fallen in the first quarter of 2008.18 April 2008
MADRID - Spain's massive property boom is now officially over. The Housing Ministry will announce Friday that house prices fell in the first quarter of 2008 in real terms, the first drop since the surge in the housing market kicked in over a decade ago.
House price inflation in the first three months of the year will come in below consumer price inflation, which in March stood at 4.5 percent.
Home price inflation has been easing for over a year now. In the last quarter of 2007 prices rose 4.8 percent, compared with rates of just below 20 percent at the height of the boom.
House prices have more than doubled on average during the boom, pricing would-be first-time buyers out of the market in a country where there is a lack of affordable rented accommodation in the private sector.
The government has been looking to bring house price inflation in line with consumer price inflation and at last appears to have achieved this with new Housing Minister Beatriz Corredor having been in office barely a week.
But rather than the gradual slowdown the government was hoping for, the property sector is now in a state of crisis exacerbated by the global credit crunch, with a knock-on effect in the rest of the economy.
The International Monetary Fund recently slashed its forecast for Spain's GDP growth for this year to 1.8 percent - compared with growth last year of 3.8 percent - citing a slump in the housing market, where it said prices could be overvalued by up to 20 percent.
In March, the Madrid Property Developers' Association predicted home prices would fall 8 percent this year and 4 percent the following year. As a result, the construction sector is expected to shed 600,000 jobs over the next two years, pushing the unemployment rate up to 9.6 percent from 8.6 in 2007.
Home sales in January plunged 27 percent, while cement consumption, a key barometer of the state of the construction sector, shrank by over 14 percent in the first quarter of the year.
A growing number of real estate developers have gone into receivership, while the number of people out of work has also been trending upward since the end of last year, with the construction sector particularly affected.
More forecasts cut
Funcas, the think-tank of the Spanish association of savings banks, yesterday predicted the residential construction sector would shrink by 6.9 percent this year.
As a result, Funcas cut its GDP growth forecast for this year to 2.0 percent from 2.6 percent previously, and its estimate for 2009 to 0.9 percent, from 1.6 percent.
[El Pais / Adrian Soto / Expatica]