Spanish property prices continue to slide

 

Residential property prices in Ireland have slumped by 50% since their peak in late 2007, while Spain's real estate values have fallen by almost 33%, the EU's statistics office Eurostat said on Thursday.

The data, which has been released by Eurostat for the first time, shows the extent of the property crash that followed the global financial crisis from 2008 and propelled the euro zone into its own debt crisis that nearly broke up the currency area.

A bursting of the property bubbles in Ireland, Spain and, to a lesser extent, Portugal not only erased years of economic growth but left banks with trillions of euros of bad loans and has pushed up unemployment to record levels.

The magnitude of the losses meant Ireland needed a sovereign rescue after the government moved to save its banks, drove Spain to seek a bailout for its lenders, and deepened an economic slump that spread across the euro zone last year.

But underscoring the sharp economic divergences across the euro zone, house prices fell only 4% overall in the bloc between their peak and the third quarter of 2012 because property has retained its value or risen in the wealthier, northern economies of Belgium, France and Germany.

In the most recent quarterly reading of the health of the residential property market, Eurostat said real estate prices in the 17 nations sharing the euro fell 2.5% over Q3 compared to the same period a year ago.

That was still the biggest drop since the third quarter of 2009, when prices fell 3% and the worst financial crisis since the 1930s drove the euro zone into recession.

FREEFALL OVER

The weak property market will hold back households from increasing their spending on the kind of consumer goods that could help the euro zone's economic recovery this year.

Despite record low interest rates, consumers are reluctant to spend when unemployment is at a record high and as governments continue to cut spending to try to bring down their budget deficits. Property prices are no longer in free-fall however.

Compared to the previous quarter, house prices in the July-to-September period fell at a lower rate in Spain and Portugal and grew 1.6% in Ireland in Q3.

No details were available for Germany, Europe's biggest economy, but in France, prices rose for the first time in four quarters by 0.9%.

The ECB's decision to put its huge financial weight behind the euro zone last year and buy the bonds of governments in trouble if asked has helped ease the crisis, but weak house prices show how far many countries are from recovering from the downturn. Spain still has an inventory of hundreds of thousands of unsold homes.

Even the Netherlands, one of the few remaining euro zone countries with a triple A rating on its sovereign debt, has suffered from the bloc's economic fallout and Dutch house prices fell 8.7% in Q3.

On a quarterly basis, Italy and the Netherlands both saw house prices fall by more than other euro zone peers, by 1.1% and 3.9% respectively.