Inevitable Fall for Spanish Property

Spanish house sales dropped steeply in June, deepening a property crisis that dates back to the start of the year and analysts say is likely to worsen in 2009.

House sales dived 29.6 percent in June from a year earlier after a 34.3 percent drop in May, the Economy Ministry's National Statistics Institute reported.

Spain had been among the euro zone's hottest real estate markets but house prices fell for the first time in a decade between April and June as chronic overbuilding and 8-year-high mortgage rates added to the impact of the U.S. credit crunch.

"House sales have fallen on a month-on-month basis since the beginning of last year, when the indicator began, and this is just the start," said Merrill Lynch economist Daniel Antonucci. "We expect data to continue to worsen well in to next year."

Mortgage lending also plummeted 40.6 percent in June after a 40.4 percent drop in May, as the credit crunch squeezed Spanish banks. Strong economic growth in Spain over the last decade had been supported by surging property and construction markets, though many analysts expect the country to go into recession in the second half of the year as housing demand collapses.

"It's awful, as usual," said Stephane Deo, chief economist at UBS. "The housing market is in freefall and this is just another confirmation that this sector is in deep, deep trouble."

House prices are expected to follow the worsening sales and mortgage figures, with some analysts predicting a depreciation of up to 30 percent in average property values over the next few years.

"We're not seeing prices fall as sharply in Spain as in the UK, but that is because the promoters are in no hurry to sell in the current market. But, the fall is inevitable and will be hard," said economist for Ibersecurities, Juan Rodriguez Rey.

Spanish house prices fell 3.9 percent in July from a year earlier, marking the fifth month of decline, an industry report showed at the beginning of August.

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