MADRID (Reuters) - Spanish house hunters should wait until at least 2010 before dipping a toe in the market due to huge stocks and recession, economists polled by Reuters said.
Five Spanish and five foreign-based economists surveyed this month said prices would drop 20-50 percent by the end of the downturn, or 32 percent on average from their 2007 peak when prices stood three times higher than at the start of the boom a decade before.
Sellers face as bad a market as anywhere in Europe, said Veronique Riches-Flores, senior European economist for Societe Generale in Paris.
"Prices are ridiculous when you look at the state of the economy," said Riches-Flores, who expects prices to fall 40-45 percent from their peak, and who like six other economists polled said the market would not bottom out until 2011 or beyond.
Spain's unemployment rate is around 15 percent as a deep recession worsens, and foreign economists emphasise the country's economic model needs a radical overhaul to boost its competitiveness and unwind the debts that drove a decade of growth. Spain could suffer a lengthy 'L-shaped' recession, bearish analysts warn.
Against this backdrop of weakness, Spain has a supply overhang estimated at 1 million unsold homes -- three times the number of households created in Spain each year. Banks are now adding to that by releasing repossessed homes onto the market.
A similar Reuters survey in Ireland indicated house prices would not start rising for more than a year, with a risk that soaring unemployment could delay that.
All 10 experts said the overhang of empty apartments and half-finished estates around Spanish towns had to be absorbed in the next two or three years before prices gained some traction.
"What I don't expect in Spain is a rapid bounce-back," said BNP Paribas economist Dominic Bryant. "Prices might stop falling but you will need quite a sustained period of robust demand to clear the backlog to help prices come back."
According to government data, prices only fell 3.2 percent last year, though analysts say this massively under-reports the real size of the fall. Housing Minister Beatriz Corredor said in November they may already have dropped 15 percent.
Gregorio Izquierdo, head of economic studies at the National University of Distance Learningsaid oversupply should begin to stabilise in the last quarter of 2009 as a 40 percent fall in housing starts in early 2008 begins to feed through.
However economists agreed demand will remain fragile, even when lenders start to unfreeze credit.
Speculators who snapped up new builds and flipped them for quick profit have vanished. They made up 70 percent of the market in the boom's latter years, said Inversis analyst Ramon Ortega. Foreign buyers, particularly Britons hit by the weak pound, have deserted, sapping the second-home market.
Intermoney chief economist Jose Carlos Diez said falling prices would help unblock pent-up demand from 30-somethings born in Spain's 1970s baby boom who are priced out of the market.
An average 100 square metre new build in a city cost 271,000 euros (251,000 pounds) last year, according to valuation firm Sociedad de Tasacion, while the average wage was 21,400 euros. By comparison, the average German wage is 41,200 euros according to IESE, but the same sized town or city apartment would cost 187,000 euros on average, say German finance group Hypoport
Economists agree Spain will never again see conditions it enjoyed at the start of the decade, when a historic drop in interest rates, bank offers of 100 percent mortgages and soaring immigration turbo-charged the market.
"This story is dead, because we will not see such a steep fall in interest rates again," said Ralph Solveen at Commerzbank in Frankfurt. "For the next 10 or 15 years we will not see a return to this (boom)."
Spain also has the highest unemployment rate among major developed countries, set to top 20 percent by the end of next year according to think tank FUNCAS.
"This correction could take 10 years to happen. A 50 percent fall (in house prices) would not be unexpected," said economist Luis Garicano of the London School of Economics, pointing to falls of over 30 percent in U.S. cities like Phoenix and Miami in the space of a year even though the overhang there was only one year's supply.