Home sales in Spain fell 27 percent in January compared to a year ago, the government reported Wednesday, releasing more bad news from the country's once-booming real estate sector.

The National Statistics Institute said the number of mortgages granted in January also plummeted -- by nearly 26 percent compared to January of 2007, in the biggest such drop since 2004.

Fueled by rock-bottom interest rates, the construction sector had been a driving force behind more than a decade of economic growth in Spain. Housing prices rose 17 percent in 2004 and 9.1 percent in 2006. But the sector started to cool dramatically in 2007.

Interest rates have jumped three points in as many years, there is a glut of housing on the market and banks spooked by the subprime crisis in the U.S. are now much tighter when it comes to lending.

Housing prices in major cities are now falling.

In Barcelona, for instance, they fell 0.5 percent in the first quarter of this year, declining for the fourth straight quarter, according to a study released Wednesday by idealista.com, a major Spanish real estate portal.

Prices are also falling in Madrid and Valencia, and the downward tendency will intensify over the course of this year, the study said.

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