Spanish banks will have to put a “huge quantity” of repossessed homes on the market over the next few months, said Juan Iranzo, Managing Director of the Institute of Economic Studies (IEE), during the presentation of a new book on the Spanish economy and housing market, sponsored by the savings bank Bancaja.

According to Iranzo, the banks are sitting on 100,000 of Spain’s 700,000 unsold new homes, which they will now have to dump on the market. Thanks to new rules from the Bank of Spain forcing banks to increase their provisions on unsold properties, which took effect in January, Iranzo also expects the banks to drop their prices in search of sales. He pointed out that banks need to improve their balance sheets by selling property, though it is unclear how selling property at a loss will help do that.

What green shoots?

There has been some talk recently in the mainstream Spanish media about an incipient recovery in the housing market, but according to Iranzo the housing sector will get “quite a lot worse” this year, thanks to the recession and increasing unemployment. “The outlook doesn’t favour the house purchases,” remarked Iranzo. He warned that prices still have room to fall, and that interest rates will go up towards the end of the year, putting further pressure on prices.

“Never again”

A glut of newly-built properties isn’t the only problem the market is having to deal with. Demand has also retrenched massively, and may not pick up until 2012 or 2013, says Iranzo.

When does he expect demand to return to the boom levels of 700,000 homes a year? “Never again,” says Iranzo, who expects demand to stabilise around 450,000 homes per year in 2012.

It is important to note that Iranzo is basically talking about the market for primary housing in and around Spanish cities, not holiday homes on the coast. Some experts expect the quality holiday home market to recover much quicker, thanks to supply limits and internationally diversified demand.