The goal of this paper is to explain recent dynamics of housing prices in Spain. Two phenomena have been observed simultaneously: a signi cant decline in interest and mortgage rates and explosion of Spanish housing prices. Between 1998 and 2002 Spanish housing prices were growing well above in ation level, practically doubling during this period. The decline in interest rate should normally lead to a decline in housing prices, but in Spanish case it has correlated with growth of housing prices. The paper tries to explain the observed phenomenon with the decline of mortgage rate in the environment of local monopolies in housing construction. Contrary to US mortgage markets, which follow long-term rather than short-term interest rate path, Spanish banks o er mortgages at EURIBOR rate plus a small margin. This leads to a signi cant growth in mortgage accessibility for less wealthy agents, but in monopolistic environment is translated into rise of housing price for new construction. The prices of used housing also follow this path. Additional growth e ect comes from an increased demand for housing as nancial asset. There exists an evidence about signi cant purchases of second houses, partly for investment or speculative reasons. The paper constructs a theoretical model of housing prices taking into account all described phenomena.