MADRID, Jan 18 (Reuters) - Spanish house price growth hit its lowest rate in nearly a decade in the fourth quarter, the Housing Ministry said on Friday, deepening a slowdown in what has been one of Europe's hottest housing markets.
Growth nearly halved from the same period a year ago to 4.8 percent year-on-year in the fourth quarter. That was down from a rise of 9.1 percent in Q4 2006 and 5.3 percent in the third quarter last year.
While many economists fear a housing and property slowdown will spill over into the rest of the economy, the government said Friday's data showed a much-needed cooling of the market, making it easier for people to buy homes.
"The government has met its targets for house price growth to be in line with inflation," Housing Ministry Policy Director Rafael Pacheco told a news conference.
He denied there was a crisis in the housing sector and said prices and construction activity were undergoing a gradual adjustment.
A weakening economy could endanger the governing Socialists' opinion poll lead before general elections on March 9, analysts say.
Spanish house prices have nearly tripled in the past decade but the market has succumbed to overbuilding of over a million homes in the last four years and a paralysis in demand amid expectations prices may soon fall.
Spanish house demand is "dormant" due to uncertainty over how big a correction Spain's market is facing, said Santiago Baena, Chairman of Spain's API real estate agents network.
Prices are expected not to grow at all over this year, fall 1.8 percent in 2009, then return to zero growth in 2010 before a possible recovery, according to a Reuters poll published on Jan. 10.
"This is a year of uncertainty. With everything that has happened, and national elections on top of that, the country has been paralysed," said Baena. "There is going to be a tough correction this year, but it's going to leave the real estate sector with fundamentals to allow it to take off again."
Xavier Segura, head of research at Caixa de Catalunya agreed the figure could be read positively. "It's good for house price (growth) to approximate inflation, so from that perspective the figure is good news," he said. Spanish inflation rose to a 12-year high of 4.2 percent in December.
Mortgage lending by Spanish banks has fallen from 28 percent growth in June 2006 to 20 percent in June 2007, according to the Bank of Spain, as higher interest rates coincide with tighter lending conditions after the global credit crunch.
Non-performing loan rates among Spanish banks are rising towards the higher levels seen in other European countries as households face 8-year high mortgage interest rates, according to the Bank of Spain.
More than half of families that took out mortgages between 2005 and 2007 may have difficulties repaying them in 2008, according to Spain's Financial Intermediaries Association or Asifin.
