Generally speaking, Spanish property prices have fallen by less than you would expect given Spain’s economic crisis, high unemployment, and monumental housing glut (especially holiday homes on the coast).

I say generally speaking, because some people who have done their homework and have funds in place ready to pounce are finding bargains from distressed sellers with a lot of equity to sacrifice. In these cases, prices have fallen enough. After all, if something sells, it means the price is right.

But putting those exceptions aside, anyone house hunting in Spain today may well conclude that asking prices have not fallen as much as they should have, certainly compared to the US and UK. Why is that?

Partly because of Spain’s banks and savings banks (cajas) who control the market through their own property portfolios, and through the owners and developers they have financed.

It appears that these guys are only reducing prices to the extent that they can afford to write off losses without damaging their capital ratios. That also helps explain why transactions are so depressed; if prices were lower, there would be more sales

A few months ago the Bank of Spain announced plans to introduced a new rule forcing banks to write off an additional 10% of the value of any repossession they have owned for a year or more, on top of the 10% they have to write off when they first repossess. This might give banks an incentive to drop prices, as banks can either drop their prices by 10% in the hope of a sale, or lose it anyway through provisions.

We will have to wait and see. All we know for sure is that, at present, banks do not appear to be serious about selling their stocks of holiday homes. If they were, they would be priced to sell, which they are plainly not.

I predict that this will start to change in 2010.