House prices in Spain are still 17pc too high, argues the latest quarterly report on the Euro-zone economy published by the European Commission. But that conclusion might have more to do with Spain’s dodgy data than inflated house prices.
As far as the Commission is concerned, property prices in Spain are now the most over-valued in the Euro-zone, despite one of the biggest housing bubbles and busts in Spain’s history.
Prices have fallen across the Euro-zone, by 8.3pc, but that still leaves average Euro-zone property prices 3pc too high. Nevertheless, the correction is largely completed in Europe, though not in the US, where prices are still 10pc too high, argues the report.
The situation in Spain is not so comforting. Prices have fallen by 18pc since the peak, outstripped only by Ireland, where prices are down 37pc and counting. But despite the second-biggest fall in Euroland, Spanish house prices are still 17pc too high, as far as the report’s authors are concerned.
The report also claims that, at the end of 2008, Spanish property prices were the most inflated in the EU, at 24pc over-valued, followed by the UK (18pc) and Finland (15pc). Germany and Holland were the only Euro-zone members without a property bubble. In the US, prices were 15pc too high.
I should point out, however, that the problem with this report, and all those like it, is it is based on dodgy data, at least as far as Spain is concerned. Spain’s official data for the housing market significantly understates the extent to which property prices have fallen. From what I can tell prices have fallen more like 30pc, though nobody really knows. The point is leave aside official data, and Spanish property doesn’t look so over-valued.
The Spanish government would be doing itself a big favour if it found a way to publish more reliable data. Doing so would avoid reports like this telling the world that Spanish property is still wildly over-valued when it might not be.