Home prices set for further 25% plunge: report

Spain's real estate market crashed in 2008, throwing more than a million people out of work, exposing banks' reckless loans, and sharply reducing regional governments' income.

Since the first quarter of 2008, nominal house prices have declined 22 percent, more than any other eurozone country except for Ireland, Standard & Poor's said in a report. “However, the magnitude of the decline has to be juxtaposed against the 150 percent rise in prices in Spain between 2000 and the peak in 2008,” said the report by Jean-Michel Six, Standard & Poor's chief economist in Europe, the Middle East, and Africa.

In the same period, eurozone home prices on average climbed by 60 percent, it said. “A look at each of the major trends affecting Spain's residential real estate market -- the housing overhang, household debt, housing price ratios, and unemployment -- indicates that the correction is likely to take up to four more years,” the report said. “In addition, price fundamentals show that a further 25 percent drop in housing prices could be in order.” Estimates of Spains's stock of unsold homes range from 680'000 according to government figures to 818'000 according to CataunyaCaixa bank, the rating agency said.

With annual demand at about 300'000 homes on average, and with about another 80'000 new homes being built every year, it should take four more years to balance supply and demand, it said.

Home mortgages, accounting for 75 percent of all household debt, had multiplied 2.5 times between 2003 and 2010, it said, while the length of these loans grew from an average 12 years in 1990 to 28 years in 2007.

House prices fell by an average six percent a year from 2008 to 2010 before slumping by nine percent in 2011, it added.