Spanish Home Prices Decline for a Third Quarter

By Emma Ross-Thomas

Oct. 1 (Bloomberg) -- Spanish home prices fell for a third quarter the region including Barcelona showing some of the sharpest declines, as the end of a decade-long construction boom edged the economy toward a recession.

The price of used and new homes declined 0.3 percent in the second quarter after falling 0.4 percent in the first, the National Statistics Institute said in the first publication of the indicator. From a year earlier, home prices also slipped 0.3 percent in the quarter, following a 2.8 percent gain in the first three months of the year, the Madrid-based institute said.

Rising interest rates and tighter lending globally made mortgages less accessible and helped push Spanish builders and real-estate companies into bankruptcy. The slowdown is spreading to other parts of the economy and Spain is expected to follow Ireland into a recession this year, according to the European Commission.

The Spanish economy is particularly sensitive to the property market as some 80 percent of households' assets are tied up in real estate and 81 percent of households own their main home, according to Bank of Spain data. Second-hand housing prices fell 4.9 percent in the second quarter from a year earlier, while new-house prices rose 5.3 percent.

``We continue to expect falls of at least 25 percent over three years from peak to trough,'' said Ben May, an economist at Capital Economics in London. He said the increase in new-house prices was at odds with anecdotal evidence and over-supply in the sector and expected that figure to turn negative.

`Much Steeper'

``When those fall, we'll see much steeper quarterly declines,'' he said.

Mortgage lending in Spain, where the housing boom helped the economy outpace the euro region for more than a decade, has declined for 12 straight months, separate data showed on Sept. 26, falling 29 percent in July from a year earlier. Jobless rates, swelled by unemployed construction workers, have risen to the highest in the euro area and consumer confidence has fallen to the lowest since Spain's last recession 15 years ago.

Angel Mas, president of European mortgage insurance at Genworth Financial Inc., also forecast further declines in home prices in the next 12 to 18 months.

``We see a double-digit decline this year,'' he said in an interview with Bloomberg Television in London today.

In the Madrid region, home prices fell 4.8 percent in the second quarter from a year earlier. In Catalonia, the region that includes Barcelona, prices dropped 5.2 percent, INE said. Prices in Madrid rose 0.1 percent and in Catalonia they fell 1.2 percent in the second quarter from the previous three months.

The figures from the statistics institute, which are calculated using European-Union methodology and are based on registered transactions, compare with second-quarter data from the Housing Ministry that showed a 0.1 percent decline in prices in the quarter and a 2.4 percent increase from a year earlier.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net