Home sales continue to decline despite price drops

Despite sharp falls in prices, Spain's housing market remains moribund, with heavy unemployment and tighter credit continuing to hold back demand.

According to data released Thursday by the National Statistics Institute (INE), home sales in October declined 10 percent from the same month a year earlier to 22,770, the lowest figure since March and one of the lowest since the real estate bubble burst around the start of 2008. Sales have now fallen for six months in a row.

House prices have dropped by over 40 percent on average from their peaks around the end of 2007, but some experts believe they have to fall more, particularly given the huge glut of unsold housing units built up during the boom years.

Fernando Encinar, the head of research at leading real estate website Idealista.com, points to the "extreme difficulty faced by would-be buyers in securing a big enough loan to pay the prices buyers are asking for." He said the general impression that prices have touched bottom is mistaken and is distorting the market. "The only outcome to a halt to the downward adjustment of prices will be a stagnation in sales," he said.

The figures compiled by the INE are based on changes to ownership of houses on property registries, which means that the actual sales took place a few months before. "Traditionally, fewer homes are sold in the summer months," Encinar says.

The fall in sales in October was largely due to the new home sector, where the number of transactions declined by 17.6 percent from a year earlier to 10,071. Existing home sales fell 2.9 percent to 12,699.

Manuel Gandarias, head of research at the Pisos.com real estate website, noted that the fall in October was the second largest in any month in the past five years. "There are still no incentives to buy and on the demand side people are waiting for further falls in prices," he said. However, he believes the market offers opportunities for those with enough cash not to require a mortgage. "If you make the right purchase, this could offset possible further falls in prices in the coming months."

Gandarias said some sort of intervention might be required to reactivate the home loan market and get credit flowing again.