Bank of Spain Governor Miguel Angel Fernandez Ordonez today attempted to reassure financial markets today that the country's housing market was only in gradual slowdown as real estate stocks tumbled.
Spain's blue chip index fell over 2 per cent as property sector stocks suffered their worst fall in years on fears a decade-long property boom was unravelling. The slump dragged down Spanish construction firms and banks as concerns about a small property firm spread through the market.
"We think the property market, construction in general, is going to have a soft landing, which is what it's having," Mr Ordonez said.
"You know what the stock market is like, it's calm one day, goes up the next, goes down another, it doesn't do things based on reality."
Today's market fall was triggered by a meltdown in the share value of property firm Astroc, one of Spain's most hyped companies since it listed on the bourse in 2006.
Mr Ordonez said investors were looking at the sector as a whole rather than differentiating between one firm and another. He saw strength in property and construction based on strong immigration and employment levels. "These are factors that will safeguard the sector's health for a long time," said Mr Ordonez.
A saturated property market and rising interest rates are expected to slow Spanish house price growth to between 3 and 5 per cent by the end of the year from a high of 18.5 per cent in late 2003.
House prices advanced by 7.2 per cent in the first quarter, their lowest rate in 8 years, but still nearly three times the rate of Spanish inflation, currently at 2.5 per cent.
Mr Ordonez said mortgage growth remained high and saw only isolated credit problems among Spanish companies and households.
He said some Spanish firms may have to revise investment plans due to the impact of euro zone interest rate hikes.
But rate increases have yet to affect Spanish corporate activity, and a gradual rate tightening is favourable for the economy, said Mr Ordonez, who is also a European Central Bank governing council member.