Spanish house prices to fall by 25 percent by 2011

MADRID – House prices in Spain, which have posted one of the steepest rises in Europe over the last decade, will fall by about 25 percent in real terms by 2011, Spain’s second-biggest bank, BBVA, said on Friday.

"The biggest adjustment (in prices) is expected during the next three years," BBVA chief economist Jose Luis Escriva told a news conference called to present the bank’s latest study on the Spanish real estate market.

Spain has one million unsold homes and the glut of unsold properties will continue to rise in 2009, leading to the drop in prices, he said.

After a decade-long building frenzy, home sales dropped this year due to rising interest rates and the international credit crunch which have put mortgages out of reach of a growing number of people.

The subsequent crash in the property sector has helped push the unemployment rate up to 12.8 percent in October, the highest rate in the European Union, adding to the slump in home sales.

"Demand will be weak throughout 2009," said Escriva.

Home sales in Spain dropped by 36.4 percent during the third quarter over the same time last year to 118,533 units while the number of new housing starts fell during the period by 49 percent to 75,268 units, the housing ministry said on Thursday.

The sharp drop in home sales has so far only led to a slight drop in prices.

House prices fell by 1.3 percent during the third quarter over the previous quarter, the housing ministry said in October. It was the second consecutive quarter of declining house prices.

[AFP / Expatica]