The 1997-2007 Spanish housing market upswing was unusually long and intense by historical and cross-country standards. This went hand in hand with rapid private credit growth and booming construction investment. Since 2008, a sharp and uneven correction has taken place. The magnitude and the pace of the correction in house prices are matters of great importance at the current juncture as they impact the real economy through consumption and investment dynamics and also the financial sector through the deterioration in the value of the assets in banks' balance sheets. In order to depict the likely magnitude of these effects in 2013 we follow a two-step approach. First we construct a baseline and an adverse short-term scenario for house prices, conditional on their main determinants. Second, we simulate the impact of the scenarios on: (i) the real economy via a Bayesian VAR including the main economic aggregates and (ii) the non-performing loans (NPL) rate as a function of house prices, unemployment and private debt. The simulations point to a significant impact of house price changes on the real economy, affecting GDP, consumption and, above all, residential investment. The NPL rate also rises as house prices fall, although moderately so, after taking into account the impact of SAREB, the newly created asset management company.