BANK WARNS OF FALL IN HOUSE PRICES

News desk THE Bank of Spain has warned that housing prices in Spain are “overvalued” by between eight and 20 percent, adding that if prices do not start to come down gradually, a sharp fall could occur. However the central bank said in a report issued yesterday that it believed the decline in prices would be gradual. “(...) we can expect a shift, which is likely to be gradual, in growth rates ... towards levels more in tune with fundamentals in the short term,” the bank said in a report on the property sector. “(But)... the more time passes, the greater the risk, logically, that the necessary adjustment will end up being more brusque than is desirable.” This is not the first time the central bank has warned of inflated housing prices, a phenomenon seen across much of Europe, and fuelled in Spain by historic lows in interest rates, strong demand and favourable demographics. However up to now Bank of Spain Governor Jaime Caruana has expressed confidence that the rise in prices could be absorbed easily, without sharp movements. Despite persistent warnings of a slowdown, property prices have continued to soar. A recent report by property valuation firm Tinsa said new housing prices in Spain rose 15.27 percent year–on–year in the first half of 2003. Since the start of 1997, new house prices have risen more than 60 percent in Spain. The boom has also been fuelled by weak stock markets, lower unemployment and easier credit conditions. However many companies say there is no overvaluation, and executives from some of Spain's biggest real estate firms recently dismissed as “alarmist” reports that the housing market bubble was about to burst. And in another of Europe's faster growing economies, Ireland's central bank delivered its strongest warning to date yesterday that the country's buoyant housing market risks collapse unless prices slow down.