Spanish house prices will fall -10% this year and -12% next, setting the scene for recovery from 2012, according to Spanish bank BBVA.

BBVA said prices would fall -30% from their 2007 peak to the end of 2011, compared to a trebling of prices in the 10 years to 2007. Sales have tumbled -34% in the year to March according to Government figures, amid Spain’s worst recession since the 1936-39 Civil War and tight lending conditions.

Mayte Ledo, chief scenarios economist at BBVA’s research department, said in a presentation to journalists in Madrid: “It seems reasonable to assume that a good part of the adjustment could be over by 2012.”

The bank, Spain’s second biggest, said it estimated Spain had approximately 1.2 million unsold new homes after a speculative bubble encouraged a decade of rampant building along the coast and ringing almost every major town and city. According to BBVA, the market would only start to absorb the extra stock from the first quarter of 2010 as builders request less than 200,000 new home permits this year and next compared to over 800,000 in 2006.

Lower interest rates will improve affordability and encourage demand, particularly since Spanish banks were largely passing on most of the ECB’s rate cuts to borrowers, almost all of whom are on variable rates in Spain.