Spanish mainland holiday home market double dips

Property prices on Spain’s Mediterranean coast are now falling at nearly double the rate they were a year ago, according to TINSA.

The index shows prices in the region fell 9.5% in the year to the end of July 2011, compared with price falls of 5% a year earlier.

Interestingly, the pattern is not repeated on the Balearic and Canary islands where prices fell just 2.5%, significantly below the average Spanish house price fall of 6.4% and well below the declines seen in mainland coastal regions.

The most obvious explanation for the disparity is that the Balaeric and Canary islands have less issue with oversupply than areas such as the Costa del Sol.  It is also likely that the statistics from these island destinations reflect the higher proportion of international buyers as a proportion of the total market. 

Double dip

After sharp declines in 2009, the rate of price falls began to slow in 2010, prompting speculation from some commenters that the market was beginning to stabilize.

However, it seems much more likely that an illusion of stability was created by loose monetary policy (quantitative easing, low interest rates) and more importantly by Spanish banks not releasing stock onto the market.

The property boom was created by a huge credit bubble and the bust will not be over until the banks complete a painful process of de-leveraging.   This means even tougher lending conditions and further increases in supply.

Of course the average figures are always misleading and a few prime areas will escape relatively unscathed. 

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Source: Global edge