Spanish property crash is far from over, argues BBVA, Spain’s second biggest bank. According to BBVA’s latest report on the Spanish property sector, house prices will fall 10% this year, and 12% next year, leading to overall price falls from peak to trough of 30% by 2012, the year in which the bank expects the market to start its recovery.

According to the eggheads at BBVA who wrote the report, “the adjustment in prices has taken place quicker than expected.” The same cannot be said for the country’s glut of new homes, which the bank estimates at 1.2 million properties, and expects to reach 1.5 million by the start of next year. BBVA’s estimates are significantly higher than the governments; a new report from the Ministry of Housing estimates there are just 1 million new homes in Spain in search of a buyer.

The problem is that, when it comes to prices, the bank’s figures will look to many people in the property business as lagging behind reality. BBVA seems to agree with the government that prices have fallen so far by around 8% in nominal terms, whereas anyone working in Spanish property sales, and lucky enough to still have a job, can tell you it is more like 20% to 30%. Developer associations have also stated that prices have already fallen by 20% (and so don’t need to fall any further).

BBVA isn’t the only bank talking about price falls of 30%. In a new report on European property markets the American bank Citigroup says that it is “only a matter of time” before price falls of between 20% and 30% hit Spain, begging the question ‘but haven’t they already fallen by that much?’ Citigroup expects the European property market slump to last 5 to 6 years, and to hit Spain harder than most, thanks to excesses of Spain’s boom.

The report from BBVA also reveals that the Spanish government is spending 2% of GDP on a stimulus package for the real estate sector, compared to 0.5% in the USA, and less than 0.3% in the UK, Italy and France.

The report points out that falling interest rates and inflation mean households will have more disposable income, which should stimulate demand for housing. However, whilst people are fearful of losing their jobs, and expect property prices to keep falling, demand will remain depressed. Which is why the market will remain in the doldrums until 2012.