Despite a market crash and recent price falls, property in Spain is some of the most over-priced in the developed world, according to new figures published by The Economist magazine. Spanish house prices need to fall by around 50% to get back to the long-term average, if the figures are to be believed.
The Economist looks at property prices in the OECD (a club of developed countries) in relation to rents and incomes, comparing them to the long-term average for both measures.
By the standards of the price-to-rent ratio, Spanish property is the most over-priced in the OECD, around 80% above the long-term average. By the price-to-income ratio, Spain is the second least affordable country, 44% above the long-term average, behind only Holland.
Property prices “will have to fall still more in most countries if affordability…is to return to its long-term average,” says The Economist.
Look where Japan is, almost 2 decades after its own property bubble burst. The lowest property prices in the OECD by both measures. Could that be what lies in wait for Spain?
Bear in mind that The Economist will be using official housing market data, which in Spain can be highly misleading. It is possible that real Spanish property prices are already considerably lower than The Economist believes, making Spanish property more affordable than the chart implies.