Here is an interesting chart from the Bank of Spain looking at different scenarios for Spanish house prices and comparing them to crashes in the past.
According to the Bank of Spain’s economic models, Spanish house prices could fall as much as 38pc from peak-to-trough before bottoming out in 2012, in their worst case scenario.
That would make this slump far more savage than the last two slumps in 1991 and 1979, as illustrated in the left-hand graph above.
So much for the worst case scenario; what does the Bank expect to happen? The Bank’s baseline scenario is a peak-to-trough fall of 30pc bottoming out in 2012, making this slump only slightly worse than the past.
The graph on the right shows land prices falling 65pc by 2012 with no signs of bottoming out, in the worst case.
If you ask me the Bank’s worst case scenario could even be too optimistic, at least with regards to the holiday home sector. When all is said and done, I think we will see a shake out of between 40 and 50pc in prices on the coast. That’s what plenty of properties are selling at now.