Spanish house prices are failing to keep up with the surge in transactions, as a lingering glut of empty homes takes it toll on the market.
Values rose by 1.5% during the first quarter from a year earlier, however purchases increased by 9.4%, according to data published today by the National Statistics Institute (INE). Prices fell by 0.6% during the period compared with the last quarter of 2014.
“Challenging supply-demand fundamentals in the sector are likely to weigh down on the pace of recovery in house prices for the remainder of 2015 and 2016,” said Raj Badiani, an economist at IHS Global Insight in London. “The slower rate of increase in house prices during the first quarter of 2015 was disappointing.”
Spanish house prices fell about 40% from peak to trough following the property industry’s implosion in 2007. Though the economy is set grow by 3.1% this year and 2.5% in 2016, an excess of empty homes and lack of first-time buyers will continue to weigh down price growth going forward, Badiani said.
Spain’s housing market faces long-term challenges as the number of people between 25 and 35 years old, a typical source of first-time home buyers, will decline by 35% over the next decade, according to the Statistics Institute. The country has an estimated one million empty homes and also has the second-highest unemployment rate in the euro area at 23%.
“Demand for housing continues to battle against some harsh fundamentals, characterised by households still wary of poor labour market conditions, implying the glut of unsold new properties will continue to linger,” Badiani said.