Spanish Home Prices Stop Dropping for First Time in 3 Years

Existing home prices in Spain were little changed in January, the first month without a decline in three years, according to and IESE Business School.

The average asking price was 1,890 euros ($2,550) a square meter compared with 1,891 euros in December, Fotocasa, a Spanish real estate website, said in a survey published today. The annual decline was 9.9 percent. Homes in Madrid, Spain’s capital and financial center, rose in January 0.3 percent to 2,965 euros a square meter, 57 percent more than the national mean.

Spanish property developers have waited years for signs of recovery in a market that ravaged their business for new homes and led to writedowns and a restructuring of the nation’s banking industry. Average home prices had fallen for 36 consecutive months, losing more than a third of value from an April 2007 peak, Fotocasa said. Investors urged caution about calling the end of the down cycle.

“It’s still a very illiquid market, and there aren’t many deals going forward at these prices,” said Hugo Navarro, a money manager at BPA Global Funds in Madrid, which invests 4 billion euros. “The real price, where sales can happen and that would be reflected in official valuations, is still about 20 to 25 percent below these levels.”

Mortgage Changes

The government said in July it would scrap a tax rebate and raise value-added tax on new home purchases to 10 percent from 4 percent as of January, prompting buyers to make purchases before the rates went up.

The state’s efforts to revive the housing market would be threatend by proposed regulations governing mortgage lenders, Moody’s Investors Service said last week.

Economy Minister Luis de Guindos said on Jan. 30 he wants to prevent banks from using mortgages of more than 30 years as collateral in covered bonds that package the loans. With the longer-maturity debt making up 10 percent of the mortgage market, the rules would restrict home financing and hurt existing covered bonds, Moody’s said.

Loan delinquencies in the mortgage market rose to 3.5 percent at the end of September, the highest in at least six years, according to the Spanish Mortgage Association.

The Murcia region had the biggest price gain at 1 percent and the largest drop was 0.9 percent in Cantabria. San Sebastian in the north, Spain’s most expensive city, saw values decline by 0.4 percent in the month and 12 percent in the past year to 4,588 euros a square meter.

The data released by Fotocasa is analyzed by IESE Business School, according to the report.

(Adds state efforts to spur demand in fifth paragraph.)
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