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New home prices in Spain rise by most since 2007

MADRID (Reuters) - Spanish property prices rose 4.5% from a year earlier in the third quarter, led by the highest increase in new home prices in 16 years, official data from the country's National Statistics Institute (INE) showed on Tuesday.

New home prices in the quarter were up 11% compared with the same period a year ago due to low supply, high demand from foreign buyers and an increase in costs due to inflation.

Second-hand home prices were up 3.2% versus last year.

"The rise, especially in new housing, is largely due to the fact that we are still at very low levels of new housing production, below 100,000 new homes per year," said Javier Diaz Izquierdo, a real estate analyst at Madrid-based broker Renta 4.

In 2006, Spain approved 850,000 new licences to build homes before the property market collapsed, triggering a financial crisis years later.

Diaz said the rise in prices was also driven by the profile of new home buyers who tend to be less indebted and less sensitive to interest rates and price rises.

"There are also lots of foreign buyers that drive prices higher in holiday areas," he said.

Last week, Bank of Spain Governor Pablo Hernandez de Cos said property prices required close monitoring, although the risk of them becoming over-valued had lessened.

On Tuesday, online property portal Fotocasa said interest in house buying exceeded pre-pandemic levels, and the reduction in supply over the past year would make it even more difficult to reach a balance quickly.

"We predict that by the end of the year the price increase will be close to 5%," said Maria Matos, a spokesperson for Fotocasa.

(Reporting by Emma Pinedo, additional reporting by Jesús Aguado, editing by Charlie Devereux and Christina Fincher)