Home sales slump in first month as boom evaporates

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Number of property transactions falls 27.1 percent

27 March 2008

MADRID - House sales dropped sharply in the first month of the year as Spain's decade-long property boom ground to a halt.

The National Statistics Institute (INE) said Wednesday 61,792 homes were sold in January, down 27.1 percent from the same month a year earlier.

The fall was particularly pronounced for existing homes, which accounted for over half of the transactions in the month. Sales here dropped 35.6 percent, while sales of new homes fell 14.6 percent.

The slowdown was particularly notable in Galicia, Madrid, the Basque Country, Navarre and Catalonia. The housing market held up better in Murcia on the Atlantic coast and La Rioja in the north.

Prior to the appearance of global credit crunch in the wake of the US subprime crisis, government officials and analysts were talking about a gradual and welcome slowdown in the housing market. The latest figures, however, point to activity pulling up sharply, putting a lid on house price inflation.

According to property website idealista.com, existing home prices in the first quarter were mostly flat in the country's largest cities, falling 0.1 percent in Madrid, 0.5 percent in Barcelona and 0.6 percent in Valencia.

Higher borrowing costs have depressed demand for housing while banks have also tightened the mortgage credit conditions.

The one-year Euribor rate - the key reference rate for setting monthly mortgage payments in Spain - is on track to end March at 4.58 percent, up from 4.35 percent, the biggest increase since the end of 2005 when the European central bank began to raise interest rates from historically low levels. Over 97 percent of home loans in Spain are variable.

According to the INE, total mortgage lending in January dropped 28 percent from the same month a year earlier to EUR 13.395 billion. The average size of mortgages granted also fell by 3.1 percent to EUR 142,793.

In a report earlier this month, the Spanish Mortgage Association (AHE) said annual growth in mortgage lending eased to 13.8 percent in the first month of the year, the slowest rate in January since 1996.

The AHE expects this trend to accelerate throughout the rest of the year, with growth in lending of between 6 and 9 percent, compared with 14.9 percent for the whole of last year.

[Copyright El Pais / ADRIAN SOTO 2008]

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