Spain’s property prices fall is set to continue in 2011.
Millions of Spaniards are trapped in debt, stuck with overpriced homes that are keeping household spending low, unemployment high and international investors nervous.
The bursting of Spain’s property bubble has left few winners bar those who have scooped up a bargain at forced auctions of luxury flats in deserted housing estates on the popular coasts.
“There is an entire generation of young Spaniards with a millstone round their necks that will have to work their whole life to pay for houses now worth half what they bought them for,” said Enrique Quemada, head of One to One Capital Partners.
Financial markets have kept Spain under intense scrutiny since the much smaller Irish economy — likewise crippled by a burst housing bubble — was forced to take an international bailout last year.
The premium that Spain has to pay to borrow on the bond markets has since eased to around 2 per centage points more than the euro zone benchmark, from just over 3 per centage points at the height of market doubts in November.
Spain’s efforts to contain its banking sector’s problems have helped.
Even so, Spain’s economy could be held back for years by the mortgage debt burden. House prices have fallen 17 per cent since late 2007, according to the Bank of Spain, which says they may have some way further to fall.
And many analysts doubt that tells the full story given that figures are based on housing valuations rather than actual sale prices. They say prices may have really fallen by 20-30 per cent so far.
“Looking at previous cycles, the experience of other countries, and indicators of affordability, the adjustment in housing prices could continue,” the central bank said in its monthly report in December.
Others are less cautious in their forecast. Broker Bernstein Research says house prices will fall by 8 per cent this year, while rating agency Fitch sees a 15 per cent divergence between offer and demand.
According to Bernstein, in 2006 Spain built 860,000 houses, more than in France, Germany and the UK combined.
The fall in house prices represents a “very significant” drag on growth in Spain, according to the central bank. The country managed to escape an 18-month long recession at the start of 2010, but the economy has since failed to pick up any significant momentum.
Today there are over a million unsold properties in Spain, and that oversupply will take years to absorb given the highest unemployment rate in the European Union at 20 per cent and much tougher mortgage lending conditions.
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