House prices in Spain have fallen for a second straight quarter, the government said Wednesday, offering more bad news for the real estate sector which fueled a decade of economic growth but has now gone flat.
The Housing Ministry said prices fell 1.3 percent in the third quarter of this year compared to the second quarter. That means home prices are now only 0.4 percent higher than they were in September of 2007.
A London-based economic research organization said the situation is actually much worse, with price declines of 30 percent likely.
The ministry said that, in quarterly terms, prices fell in all but two of Spain's 17 regions.
On a yearly basis, prices did rise in some areas, such as Catalonia and the Balearic islands, where many Germans and other Europeans own vacation property.
But they fell 3.7 percent in the metropolitan Madrid region, for instance, the ministry's director of housing policy, Anunciacion Romero, told reporters.
The Spanish construction and property industries have been hit hard by a sharp rise in interest rates on adjustable-rate mortgages, which the vast majority of Spanish homeowners have. They are also suffering due to tighter lending policies at banks spooked by the sub-prime crisis in the United States and the broader international credit crunch.
The housing collapse has been devastating for the economy because construction and related industries account for up to 20 percent of Spanish GDP.
After growing 3.8 percent last year, the Spanish economy is now expected to expand just over 1 percent in 2008. The IMF predicts Spain will go into recession next year.
Capital Economics, an economic research consultancy in London, said Wednesday that Spanish housing prices will fall by around one-third over the next few years and push the economy into a prolonged recession.
It said that, with unemployment at an EU-high of 11.3 percent and consumer confidence low, only sharp declines in housing prices will lure people back onto the market.
Furthermore, Bank of Spain data suggests banks here are continuing to tighten the supply of mortgages, and a glut of unsold houses — some estimates say there could be as many as 1 million by the end of the year — "could ultimately force struggling property developers into a fire sale of unsold properties to balance their books."
Source: IHT