France more resilient to home price woes

Source : Business Times - 23 Sep 2008

Ewa Filipiak, an economist who’s been apartment-hunting in Paris for six months, has decided now is not the time to buy.

‘It’s a good time to wait and see - I think chances are getting better for finding something exceptional,’ said the 29-year-old.

House price falls in Britain, Spain and Ireland have made headlines and now the slide has reached France. But several factors suggest the French market may prove more resilient than some, and Paris could even defy the trend.

People returning from August vacations who had become used to seeing a steady appreciation in the value of their homes were in for a shock when they unpacked their suitcases this year.

A national notary office report earlier this month showed existing home sales fell 25 per cent outside the French capital in the first half of the year, and Paris figures show transactions within the city’s ‘peripherique’ ringroad dropped 20 per cent over the 12 months to June.

Nationally, average prices in France more than doubled in the decade to 2007. Now they’re appreciating at their lowest rate in 10 years - and even falling in some areas - so buyers are holding back.

While 10 years of boom preceded the slowdown, in France, taxes and stricter banking rules had kept the rally more discreet than in more free-wheeling British and Spanish markets.

And just as the surge was less spectacular, so may be the slump, partly because mortgages are at fixed interest rates and cautious French households have kept debt in check.

Against a backdrop of stalling economic growth, tougher access to credit, record-low confidence and eroding purchasing power, sales data suggest falls could be right ahead.

Economist Alexandre Mirlicourtois from Xerfi consultancy predicts French prices will drop in coming months as the market corrects from years of rapid expansion, and as banks with weaker balance sheets tighten their purse strings. He estimates prices will drop nationally by 15 per cent before rising again in 2012.

HSBC France sees prices falling at an unspecified rate through 2009 before firming again in 2012.

Though prolonged, that may be less steep than in Spain, where some analysts expect homes could lose 30 per cent of their value in real terms over the next few years.

In Britain, data from the country’s biggest mortgage lender HBOS showed prices already fell for the seventh month running in August to stand 12.7 per cent below year-earlier levels.

Realtors are also admitting signs of a shift.

‘Prices have been disconnected from the economy, so now they’re set to correct and return to reality,’ said Rene Pallincourt, president of national realtors group Fnaim. Now, the general mood is one of worry, he said: slowing growth prospects are hitting real estate. Earlier this month, the government cut its 2008 growth forecast to about 1.0 per cent, from 1.7 to 2.0 per cent.

But several factors suggest price falls in France would be moderate. Mortgages are generally shorter than in the UK or the United States. A high birth rate generates regular, baseline demand. And then there’s the debt factor. Most agree that Paris, propped up by the monuments, museums and leafy avenues so attractive to high-end buyers, is well positioned to avoid the worst of a market slump.