*Spain: “No improvement until 2014” says bank

The housing market in Spain will not recover before 2014 and prices still have significantly further to fall before any recovery can take hold. That’s according to Bankia, one of the country’s leading savings banks.

Bankia believe that prices must fall by at least another 10% to restore the imbalance between supply and demand.

Housing ministry figures show house prices have fallen an average of 15.4% since the first quarter of 2008 and by as much as 40% in some, mainly coastal areas.

House sales are expected to fall 8.3% this year reaching 2005 levels according to G-14, a group comprising Spain’s major real estate firms which also says that sales will not recover to boom-time volumes until at least 2015.

There was a slight improvement in 2010 in anticipation of a VAT increase, but the country’s unsold housing stock still increased by 2.7%.

Comment

The best way to assess whether prices are overvalued is to look at the ratio of house prices to average household income.

On this measure, Spanish house prices are valued at 6.5 times average income according to the Bank of Spain.

In the UK, which is thought my many to be overvalued, the average house now costs around 4.4 times average income. It the early 1990’s prices fell to 3.1 times earnings.

Using the official figures, Spanish house prices are 47% above those in the UK and more than double the level that could be achieved in a 90’s style bear market.

Silver Lining

The positive news though is that the official Spanish figures are themselves over-valued as they reflect asking not sale prices.

The situation is likely to better than the official figures suggest. But if I had to put my own money on the short term direction of Spanish house prices, it wouldn’t be on a surprise upturn.

Source: Global edge

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