MADRID -- Spanish home sales and new mortgage approvals fell sharply again in June, signaling continued pressure on Spain's once-flourishing home-building industry that fed the country's decadelong economic boom.

Home sales fell at an annual rate of 29.6% in June, while the number of new mortgages fell 37.7%, data released Thursday by Spain's National Statistics Institute, or INE, showed. In May, annual home sales plunged 34.3%, and the number of new mortgages fell 36.2%.

Getty Images Spain's once-booming home-building industry continues to falter.

Spain had been among the euro zone's hottest real-estate markets, but house prices fell for the first time in a decade between April and June as chronic overbuilding and eight-year-high mortgage rates added to the impact of the U.S. subprime credit crunch.

The housing bust also spells bad news for Spanish banks, especially its system of local savings banks, which generate roughly half of the country's lending and deposit-taking. Moody's Investors Service earlier this month cut its ratings on five large and medium-size Spanish savings banks, noting "the rapid deterioration in asset-quality indicators."

Research firm Keefe, Bruyette & Woods Ltd. has raised concerns about several of Spain's commercial banks that have real estate and construction loans making up nearly a fifth of their portfolios. Foreign banks operating there are also taking a hit. When British banking company Barclays PLC reported a 35% drop in first-half net income earlier this month, the results included impairment charges of £103 million, or about $190 million, in its Western European retail and commercial business to help cover losses tied to Spain's property and construction markets. The country's banks have also more than doubled their use of the European Central Bank's liquidity facility since the credit crunch began a year ago.

Many analysts believe the banks will ultimately weather the storm. Spain's two largest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, are in a relatively good position, analysts say, thanks largely to buoyant earnings from Latin America and other parts of their global operations. A May report from Fitch Ratings found that Spanish banks have been developing strategies to capture retail deposits and called their wholesale funds "generally well-diversified."

The fall in housing investment is hampering economic growth in Spain, the fourth-largest economy in the euro zone, with gross domestic product rising 0.1% in the second quarter, compared with the first three months of the year.

--Sara S. Muñoz contributed to this article.

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