Bank of Spain warns of a housing bubble with properties overvalued by up to 8.5%

THE Bank of Spain has warned that steep rises in property prices are being pumped up by overvaluation.

It puts overpricing at between 1.1% and 8.5% as a national average due to a lack of available housing combined with household income rises.

The entity’s Financial Stability Report does not offer regional breakdowns but suggests that the Madrid and Barcelona areas have some of the biggest issues due to their high concentration of real estate.

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The bank’s director-general of Financial Stability, Daniel Perez, said: “House price rises are being caused by a lack of supply, though overvaluation remains at a moderate level’.

Calculations have been made based on prices at the end of last year, and show a dramatic shift over six months from an overvaluation range of 0.8% to 4.8%, up to the current estimate of between 1.1% and 8.5%.

According to the Bank of Spain, house prices rose in real terms at the end of 2024 by 11.5% above the pre-Covid pandemic level.

This is a similar figure to those seen in 2004 but still 22% below the maximum set at the height of the mortgage boom in 2007 before the property bubble burst.

The bank recently estimated a deficit in housing at between 400,000 and 450,000 homes between 2022 and 2024.

It said the imbalance was particularly ‘significant’ in five areas, namely Alicante, Barcelona, Madrid, Malaga, and Valencia which totalled up, account for over 50% of the defecit.

Many of those areas include significant quantities of tourist housing coupled with foreign buyers hiking up prices.