Clearing spain’s ‘property-glut’

It will take 3 years to clear Spain's excess property inventory, claims one expert...

According to a new study by José García-Montalvo, a professor at the Pompeu Fabra University, Spain's developers finished 2008 with 1.05 million newly built homes in stock, and based on last year's average sales rate this inventory of unsold new homes will take more than 3 years to clear.

Some regions are faring better than others. The excess inventory in Madrid, where developers were quicker to respond to slowing demand, will take 2.2 years to sell, compared to more than 5 years in Catalonia, where the stock of property is still growing whilst the sales rate falls off steeply.

Spain's excess housing inventory is likely to be an even bigger problem than the study suggests, and by some estimates, investors bought 30% to 40% of the properties sold during the boom years, and many of them are now trying to sell.

Big price drops needed

Professor García-Montalvo's report also argues that prices need to fall ‘between 40% and 50%' from their peak in the first half of 2008 to bring the housing affordability ratio back to its long-term average.

He further added: "The housing affordability ratio is currently 7 times disposable household income - this indicator needs to fall to four times, as is happening in the USA. For that to happen, household incomes need to rise rapidly - which doesn't seem likely - or house prices need to fall."

"Assuming that prices have already fallen 20% from their peak, which there is some evidence that they have, that means prices still need to fall by up to 30% to bring prices back in line with the long-term affordability average".

Source: www.kyero.com

Photo: JaviC