Spanish home prices posted the biggest annual decline on record in the first quarter as the euro area’s fourth-largest economy sank deeper into recession and banks reined in lending.
The average price of houses and apartments declined 12.6 percent from a year earlier, the most since the measurement began in 2008, the National Statistics Institute in Madrid said today in an e-mailed statement. Prices dropped 5 percent from the previous quarter.
“The state of the economy and government measures to force banks to set aside more provisions are accelerating the drop in home prices,” said Fernando Encinar, head of research at Idealista.com, Spain’s largest property website. “This trend will continue over coming quarters as home owners have no other option than to cut asking prices if they want to sell.”
Prime Minister Mariano Rajoy is battling to turn around a real-estate slump that has pushed Spain into its second recession since 2009 and driven unemployment to 24.3 percent, the highest in the European Union. His government forecasts an economic contraction of 1.7 percent this year.
Spain passed decrees in February and May forcing banks to make deeper provisions for losses linked to real estate in an effort to push down prices, boost sales and restore credibility to the banking industry.
Moody’s Investors Service cut Spain’s credit rating yesterday by three steps to Baa3, one level above junk, citing the nation’s increased debt burden and weakening economy. The move came days after Europe’s 100 billion-euro ($126 billion) weekend bailout of Spanish banks.