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Spain Will Lead Decline in House Prices in Europe

According to a recent report by Standard & Poor’s, the Spanish housing market will lead the falling prices in Europe this year. They estimate that prices will drop by 7.8% in 2013, partly due to the creation of the bad bank (Sareb), and that the cumulative decline over the next four years will be around 20%.

The rating agency notes that the adjustment of house prices in Spain has already reached 26% since their peak in March 2008 which, with a further anticipated drop of 20%, will bring the total decline to 46%, placing prices at almost half the levels they were before the onset of the crisis. The report estimates, according to International Monetary Fund data, that there is still a stock of between 700,000 and one million unsold homes, and that the prices will fall by 6% in 2014.

One of the reasons for the fall in prices in 2013 will be due to the launch of the Sareb after the bank bailout. El Pais reported that the agency stated: “The recent injection of liquidity in the Spanish banking system is likely to accelerate the cleanup of the balance sheets of financial institutions and the disposal of real estate assets in the portfolio”, which “will contribute to a further drop in prices this year”. They pointed out, however, that the rapid increase in unemployment, along with the severe fiscal adjustment and tight financing conditions “are also fueling the residential market decline.”

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