Downward Pressure on House Prices

House prices dropped by 1% in the third quarter of the year, according to the most recent housing market survey from FNAIM, the professional association of French estate agents.

On a rolling annual basis, prices have now risen by 4.8% in the 12 months to September 2007, but with the trend heading south over the past few months.

Once again, however, the picture varies across the country, with prices in the South West facing the strongest downward pressure. The region is the only one in the country where prices have actually declined over the past 12 months, be it by an average of only 0.7%.

By contrast, prices in the South East, Ile-de-France, and North West are holding up better.

Table: Regional Prices – Year to 30 September 2007

Region	Price Change
West	+3.9%
Ile de France	+7.4%
North East	+6.1%
South West	-0.7%
Centre and Alpes	+5.7%
South East	+5.1%
France	+4.8%

Source: FNAIM

The picture is a more sombre one for apartments, where prices dropped by 1.7% in the last quarter. Over the past 12 months, prices nationally of apartments have now increased by only 1%. Prices in the North East and South East are firmer, with increases of around 4% over the past year.

The estate agents consider that prices may well continue to fall in the next quarter, although they do not believe a market crash is on the cards.

Their forecast is based on evidence of strong underlying demand, the continued growth in disposal incomes, and the new mortgage tax relief measures recently introduced by the Government.

This is a view that is shared by other major house price indices now regularly published, from BoursePAP and Entreparticuliers, both major property listings magazines.

However, a more sombre prognosis has recently come from economic consultants Precepta, who argue that prices will drop by around 18% between now and 2010.

Their view is based on what they consider to be the ‘globalisation of housing market cycles’ from which they consider France cannot remain immune. They argue that, over the past ten years, house prices across the globe have massively outstripped the increase in personal disposal incomes, and that a structural correction in the market is now inevitable.

By contrast FNAIM consider that the crisis in the US sub-prime mortgage market, in particular, is going to have no more than a minor psychological effect on conditions in France, as lending conditions are far tighter than in many other countries, and the banking sector is one of the strongest in the world.

Their view is also shared by online credit broker and consultants Empruntis/Bipe in a recent joint study of the market outlook, who argue that, whilst prices will drop by around 3% next year, no market crash is likely, as the credit system in France does not mirror the Anglo-Saxon model.