S&P says average Spanish property prices to drop further

Prices of Spanish properties could decrease a further 25 percent over the next 4 years according to Standard & Poor.

Since the first quarter of 2008, nominal house prices have declined 22 percent (based on official figures), although it is worth taking into account that property prices rose by 150 percent from 2000 to 2008, as opposed to the European average which stood at a 60% increase over the same period.

Now based on S&P’s figures, there are between 680,000 (according to Spanish Government) and 818,000 (CatalunyaCaixa), which based on an annual demand of 300,000 homes on average, and with about another 80,000 new homes being built every year, it should take four more years to balance supply and demand, it said

Home mortgages, accounting for 75 percent of all household debt, had multiplied 2.5 times between 2003 and 2010, it said, while the length of these loans grew from an average 12 years in 1990 to 28 years in 2007.

House prices fell by an average six percent a year from 2008 to 2010 before slumping by nine percent in 2011, it added.

But despite new mortgages drying up, household debt eased much more slowly, now standing at 81 percent of total economic output compared to 87 percent in June 2010.

That debt ratio would have to fall to the long-term average of about 66 percent of economic output before house prices could steady, the agency said, estimating the process could take four years.

Just comparing Spanish property prices to the level of people’s incomes and the cost of renting, housing prices needed to decline by nearly 25 percent to return to long-term averages, it said.

Of course these figures are based on national averages (wages, demand, etc…). As always property types in short supply (front line beach properties for example) or in sought after areas (properties in Puerto Banús for example) will hold their prices compared to the national average.

Andrew Belles

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