Morgan Stanley predicts falling property prices in Spain

According to a report by the American investment bank, Morgan Stanley, property prices could fall by up to 5% in 2008 followed by a stabilizing period if demand for new housing only falls moderately. This fall in property prices could continue in 2009 and 2010 if the drop in demand for new housing becomes more intense.

The report by Morgan Stanley suggests three scenarios each of which depends on the evolution of the demand for housing and activity in the sector. In the first scenario the demand for new housing drops to 475,000 as oppose to 600,000 which is the figure at the moment – this would cause a drop of 40% in the activity of the housing construction sector by 2009. The number of properties indicated would be 400,000. If this were the case property prices would fall by 5% and then remain stable over the next few years.

The second scenario which is more optimistic is that housing demand remains at present levels (600,000).

In this case activity in the housing construction industry would fall by 20% in 2009 but prices would continue to rise but not more than 5%.
In the last scenario demand for new housing falls to 350,000, a higher rate than in the first scenario, which would result in a 70% fall in activity in the construction industry in 2009. In this case prices would fall by 5% per year from 2008 to 2010.

This last scenario implies a sharp fall from which the housing building sector would take a decade to recover from and would be similar to the situation in Germany at the end of the 90’s when reunification brought about an end to the housing boom there.