House prices in Spain are still overvalued by 20%, according to report

This ratio fell from 32.2 in 2007 to 28.9 in 2008 and 23.6 in 2009, but the institute says the price of housing still must be reduced by 20 percent for the PER is equal the historical average (19.5).

House prices in Spain are still overvalued by 20%, according to report

The average house price in Spain shows an overvaluation of 20 percent, concludes a study by the Instituto Juan de Mariana. This institution calculated the relationship between the sale price of real estate (2558 euros per square metre to December 2009) and rental price (95.6 euros per square metres per year).

This ratio fell from 32.2 in 2007 to 28.9 in 2008 and 23.6 in 2009, but the institute says the price of housing still must be reduced by 20 percent for the PER is equal the historical average (19.5).

However, since in the past two years the overvaluation is starting to be corrected, the institution considers that the final adjustment could be reached by the end of 2011.

The report indicates that the historical average of PER in Spain is the highest in Western countries, which, together with the surplus of unsold homes and the lack of credit, however the Instituto said that housing prices could fall more than they should.

Still, it insists that throughout 2011 the house prices in Spain could be in line with that which existed before the housing bubble. It does not consider it is appropriate to stop the correction of housing prices through political means, nor aggravate the need for adjustment of prices by, for example, the construction of new subsidized housing.

It did feel it is necessary to introduce greater transparency and streamline most bankruptcy proceedings, so that the assets of bankrupt companies are settled quickly, while suggesting to the autonomous communities they should eliminate Transfer Tax to boost the market for the sale of old housing stock.



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