Home prices see biggest fall since property bubble burst

The fourth quarter of 2011 saw average home prices in Spain fall the most since the property bubble burst, dropping 11.2 percent from the same period in 2010, the National Statistics Institute (INE) said in a press release on Thursday.

To break down the figures, the average price of new homes fell 8.5 percent in the last quarter of 2011 compared to the previous year, while the price of used properties was down 13.7 percent.

Recession, unemployment and uncertainty about the country’s immediate economic future are the biggest factors real estate agents blame for the fall in home prices.

“We have been surprised at the magnitude of this downslide. We thought it would be around 10 percent,” said Julio Gil, real estate expert and partner in Horizone. He added that another factor could be that Spaniards rushed to buy homes before the end of 2010, when the government’s tax-break program expired.

Other analysts point to the fact that the country’s banks have stockpiles of homes. According to the grassroots organization Platform for the Mortgage Affected (PAH), financial institutions have foreclosed on 328,720 homes since 2007. Lenders may have as much as twice that amount, which they have acquired from developers who gave up property to cancel debts.

The quarterly drop at the end of last year was the biggest decline since the first quarter of 2007, and is also the sharpest fall since the INE began recording this particular statistic.

All of the regions in Spain recorded falls in the fourth quarter of 2011, but with prices falling as much as 15 percent, Madrid recorded the biggest drop among the regions.

Murcia had the lowest, with house prices declining by seven percent compared to the same period in 2010, the INE said.

Gil said that an additional problem affecting the sector is confusion over statistics.

“I think that it is alarming that while the INE comes up with an 11-percent figure based on actual property transactions, the Public Works Ministry indicates a six-percent decline based on appraisal values,” he said. “What figure should a foreign investor look at if he wants to purchase property in Spain?”