Spanish house prices under pressure until 2012, say Fitch

The Spanish property market correction will run into 2012, with prices down by 30% in total, say ratings agents Fitch.

Spanish property prices haven’t fallen enough, according to a new report from Fitch Ratings.

“Fitch believes that Spanish house prices remain over-valued relative to income thresholds and need to decline further to improve affordability dynamics,” says Rui Pereira, Managing Director and Head of Fitch’s Spanish Structure Finance in Madrid. “The supply overhang of unsold homes, more pro-active sales strategies by financial institutions, and reduced credit availability are also expected to weigh on Spanish home prices over the near-term.”

Fitch question official figures showing that prices have fallen just 11.2% since Q1 2008, pointing to a drop in transactions of 48% between 2006 and 2009. Sales that do go through happen at prices well below the government index, argue Fitch.

Fitch use affordability measures, house price long term equilibrium, and the imbalances of demand and supply to judge the current price of property in Spain.

At the height of the boom, the affordability ratio peaked at 7.7 years (cost of property/gross household income), up from 3.9 years in the years 1995-2000. For sustainable affordability ratios of around 5 years, prices need to fall by 30% from peak.

Fitch expect prices of holiday homes on the coast to fall the most, i.e. more than the 30% average.

Fitch estimate that there are over one million units of housing stock available for sale throughout Spain. They may be right if they are referring just to newly built homes.

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