HOME prices in Spain fell for the first time in almost 10 years in the second quarter after higher borrowing costs and restrictions on mortgage lending eased demand.

The average price of new and used houses and apartments declined 0.1 percent from the previous quarter, the Housing Ministry said yesterday on its Website. Prices rose 2.4 percent from a year earlier.

Rising interest rates and a global credit shortage are choking housing demand in Spain as central banks wrestle with a surge in inflation and the fallout from the United States subprime mortgage crisis, Bloomberg News reported. The cost of property in Spain has surged 130 percent in the past decade in Europe's biggest home-building boom, according to Sociedad de Tasacion, a property valuation company in Madrid.

"This is happening much faster than expected and much faster than is desirable," said Jose Carlos Diez, chief economist at Intermoney SA. "The US is a good example for Spain; they are two years into the adjustment and they still haven't reached the bottom."

Martinsa-Fadesa SA, a property developer with 5.2 billion euros (US$8.3 billion) of debts, sought protection from creditors yesterday after it failed to secure a 150 million-euro refinancing loan.

The collapse of the home-building industry is dragging the Spanish economy toward a recession. The manufacturing and service industries both contracted for a third month in June, a survey of purchasing managers showed.

Banco Popular Espanol SA, Spain's third-biggest bank, fell 32 cents, or 4.5 percent, to 6.78 euros yesterday.

The chances of a recession in Spain increased to 45 percent last month from 30 percent in May, according to the median response from 18 economists surveyed by Bloomberg News.