Spain house prices to fall for next 3 years

 

Spanish house prices are likely to extend their slide over the next three years as an overhang lingers from the burst property bubble and banks dump unwanted housing stock, a Reuters poll showed.

A poll of 13 analysts, who widely saw the market as overvalued even after the 17% fall since 2007, predicted prices would fall by 5% this year. Next year, prices are expected to fall by a further 3%, followed by a drop of a little over 1% in 2013.

Investors are keenly watching Spain's housing sector, concerned that the highly indebted savings banks will sell off their huge housing portfolios at discount rates to raise cash. Falling prices would further erode the value of banks' property assets, losses on which underlie concerns about the stability of Spain's banking system.

A dramatic sell-off, seen as unlikely, could hit house prices across the board but would ease pressure from international debt markets concerned the state will be forced to bail out banks struggling with low capital levels.

"Prices are strongly overvalued, inventories are still very high, the economic outlook is quite sluggish, the unemployment rate is strong and short-term rates are gradually increasing. The correction of the housing market should thus continue," said Olivier Eluere at Credit Agricole.

A negative interest rate outlook could make things worse. The European Central Bank raised rates in April for the first time since July 2008, and is expected to raise them twice more this year.

More than 90% of mortgages in Spain are tied to the variable 12-month Euribor rate and some analysts fear higher interest rates could push delinquency levels higher. Official data showed on Monday that a slide in house prices gathered pace in the first quarter of the year.

Spanish house prices have fallen 17% from their peak in 2007, according to the Bank of Spain, still less than half the size of the collapse in the U.S. market, where the financial crisis began and where prices are also still falling.

Many analysts note the official data is based on asking price rather than final sales prices, which would mean the real fall has been sharper than recorded. According to surveyor Fotocasa prices have fallen 26% since their peak.

STILL EXPENSIVE

But the housing market is still seen as expensive. The poll showed that analysts believe real estate to be overvalued by 'seven' on a scale of one to 10.

Spain's banks are scrambling to meet new Bank of Spain capital requirements, with some raising money through stock market listings, others through private investors, and some using state funds.

With property exposure of about 300 billion euros, their cause may be helped if they sell off some assets.

Oversupply in other areas may take years for the market to absorb with an estimated one million new homes unsold.

Separate polls showed a slightly better outlook for the UK housing market but further price falls in the United Arab Emirates.

Last week Spain's infrastructure ministry said it would undertake European roadshows in May to help shift some of that stock, with the minister keen to stress that he was not an estate agent but was merely trying to help the market recover.

Some analysts are sounding a bit more optimistic.

"The big drop in house prices is coming to an end. But what we are seeing in some areas is there is still a lot of oversupply and little demand and that's a big problem, while in other areas demand is clearly picking up," said Christian Pau, director of property surveyor Fotocasa.es.

Some property firms had even restarted building homes in areas where there was pent-up demand, such as the outskirts of Barcelona, Pau said. But banks selling their portfolios would have an impact on prices this year and they would likely sell them at large discounts given many were built in undesirable areas, he noted.