Risk of house price fall 'increasing' warns bank

5th January 2006, Comments 0 comments

5 January 2006, MADRID — The risk of a sharp fall in house prices is increasing and could halt Spain's economic growth, the governor of the Bank of Spain warned.

5 January 2006

MADRID — The risk of a sharp fall in house prices is increasing and could halt Spain's economic growth, the governor of the Bank of Spain warned.

The bank's governor Jaime Caruana said: "The longer the current high rates of house price inflation are maintained, the higher the risk of a more abrupt or disorderly correction in the future."

Caruana said repeated the European central bank's claim that Spanish house prices are between 24 and 35 percent overvalued.

He added that household debt as a ratio of gross disposable income had doubled to more than 100 percent since the mid-1990s.

"The Spanish economy and, particularly, its households are now undeniably more vulnerable to adverse developments, especially to a potentially greater-than-expected hike in interest rates," Caruana added.

But the risk to banks of a sudden fall in house prices was minimal because default rates are now very low and banks' solvency position is comfortable, he said.

Spain's 12 consecutive years of economic growth have been largely fuelled by buoyant consumer spending and the construction industry.

Demand for new homes exceeds supply.

At 2.25 percent the key euro zone interest rate is still low for Spain, where inflation was 3.8 percent in December, but it is expected to rise again this year.

[Copyright EFE with Expatica]

Subject: Spanish news

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