Spanish property prices might still be 12% too high say rating agency Standard & Poor’s, despite a market correction now into its 3rd year (at least). But S&P’s conclusions are only as good as the figures they use, in this case official figures that I for one don’t believe (and I’m not the only one).

This week the Spanish press got excited about a new report from S&P suggesting the housing slump might not yet be over. Spanish property prices still need to fall another 12% to reach long term equilibrium, argue S&P, challenging an emerging consensus in Spain’s mainstream media that some sort of housing market recovery is in the making.

The report was generally upbeat about most other European housing markets that are “showing signs of recovery after the recent price corrections.” And in Germany, housing is still under-valued, having never succumbed to the speculative fever that hit other markets during the boom.

S&P acknowledge that one of the main factors driving the recovery in countries like the UK is record low interest rates, currently at just 0.5%. I can’t help thinking that interest rates this low are unsustainable. What happens when they go up? In the meantime, savers are getting punished by low returns and inflation.

Official figures or reality?

Turning to Spain, S&P point out that prices might still be too high, but they also appear to suggest the slump is nearer the end than the beginning.

Using data from the Government, and leading appraisal companies like Tinsa, who say prices fell by 5.3% over 12 months to the end of March, compared to 6.6% to the end of December, S&P find that price declines in Spain are showing signs of bottoming out.

The same figures show that property prices in Spain have fallen by 16% peak-to-trough, considerably less than in the UK, not to mention Ireland. But given Spain’s weak economy, 20% unemployment, monumental housing glut, and the credit crunch now playing havoc with Spain’s banking system, how likely is that? The figures just don’t ring true.

The reality is that Spanish property prices have fallen significantly more than the official figures suggest, even if there is still a lot of over-priced property on the market. What sells is priced to sell, which means discounts from peak prices in the 20% to 50% (or more) range, depending upon what and where.

Will prices fall further? Perhaps. But what I can say for sure is that any report that uses official figures to analyse the Spanish property market is not dealing with reality.