Other countries like the US have been much quicker to deal with their real estate bubbles argues a new report from the Economy Observatory (OCE) of the Juan de Mariana Institute

Using a ratio of property prices to rents, the OCE argues that Spanish house prices are still 24pc over-valued compared to the long-term average (see graph above).

The price-to-rents ratio is a type of price-earnings ratio (PER) that helps you judge the value of assets compared to their income. High multiples, out of line with long-term averages, tend to be a sign of asset bubbles.

According to research by the OCE, Spanish property prices were 2,476 Euros/m2 in 2010, and rents were 97 Euros/m2/year, giving a PER of 25.6 years. That compares to a long-term average of 19.5 years, suggesting that Spanish property is still 24pc too high.

In 2007, at the height of Spain’s real estate boom, the OCE found house prices to be 40pc over-valued, so at least the bubble has been reduced by around half.

The OCE also worries about the slow pace of falling prices in Spain, saying it could take another 4 years for prices to return to their long-term average, or up to 10 years if price declines continue to slow.

“Without a correction in the price of housing, it will be much harder for the rest of the economy to recover. Properties have to sell and prices return to their fundamentals, as already happened two years ago in countries like the US.” (see graph below)

The problem with the OCE’s conclusions is they are only as good as the data they are based on. If they are based on official figures, which is likely, then they will be understating price declines in a big way.

Another problem is they deal in averages, which may be largely irrelevant if you are interested in a niche like prime property in a sought-after area that benefits from diversified international demand.