House price drops fail to run down glut of unsold homes

Spain's mountain of unsold new homes barely moved last year as the housing market remained anchored in a deep slump.

The Public Works Ministry said Tuesday that the stock of new housing units up for sale amounted to 687,523 in 2010, down just 0.08 percent from a year earlier. Including existing homes, the number of units up for sale totaled some 1.1 million units.

The glut of unsold new homes- built up during a decade-long boom in which Spain was building more housing units a year than France, Britain and German combined- is one the main reasons for the sharp downturn in the property market over the past three years. Spain also has Europe's highest jobless rate at over 21 percent, presenting a further obstacle to running down inventories of housing. The ministry said the stock of unsold new homes last year fell by only 521 units despite a hike in the value-added tax rate on purchases introduced in July of last year and the removal of tax relief on mortgages for the family home for all but low income groups at the start of this year.

New home transactions increased 1.4 percent in 2010 to 221,839 units, while the number of housing units completed last year totaled 218,572 units.

House prices have fallen a nominal 16 percent since their peaks toward the end of 2007 and by 20 percent taking into account the impact of inflation. The Bank of Spain estimates that prices need to drop by 30 percent in real terms to get the market moving again, something it predicts is not likely to happen until the end of 2012 or the start of 2013.

Public Works Minister José Blanco and the secretary of state for housing, Beatriz Corredor, have conducted a series of roadshows in Europe in an effort to convince foreign investors to invest in property, particularly on the Mediterranean coast, which accounts for about half of the stock of unsold new homes, and where house prices in some cases have fallen around 50 percent.

The bursting of the property bubble has compounded Spain's economic crisis. The country emerged from its worse recession in decades at the start of last year but since then economic growth has remained anemic as the government continues with its austerity drive to rein in the public deficit, which rose to 11.1 percent of GDP in 2009 before falling to 9.2 percent last year. The administration is aiming to further trim the shortfall in its finances this year to 6 percent of GDP.