France's housing hiccups

Wednesday 02 July 2008

Prices of existing homes eased in France in the first three months of the year, suggesting that the tide may be turning in a country that's stood largely aloof from the property slump afflicting neighbors such as Spain, Ireland and Britain.

If you’re in the market for a swish French mansion to call your own you can do a lot worse than the 19-bedroom, 21-bathroom abode with panelled interiors and chandeliers perched on a hilltop overlooking Monaco on the Côte d’Azur.

At a list price of $65 million, it is (or was, as of last year) France’s most expensive home, according to Forbes.com.

To misquote Tolstoy, all super-expensive properties are the same. But all inexpensive – or depreciating – properties are inexpensive in their own way.

Just consider the latest findings from France’s national statistics agency, INSEE. They show existing home prices across France easing – or stagnating - in the first quarter, as home sales took a dramatic fall.

The figures have more than anecdotal value since they suggest that France is vulnerable to the same housing hiccups evident in European neighbors such as Britain, Spain and Ireland.

Those countries hitched their economic fortunes to a housing boom that has turned bust and are now paying a heavy price - far heavier than anything seen so far in France.

France never really bought into the US-style property frenzy with the same zeal as Britain. The French have generally shunned variable-rate mortgages, with their element of unpredictability, and home-lending practices have toed a more conventional line.

Nonetheless, a tide may be turning in France, where existing home prices fell 0.8% in the first quarter of this year - after rising just under half a percent in the previous quarter. In Paris itself, prices were still up 1.1% in the first three months, but that marked a slowdown from the 2% increase in the year-earlier period. And elsewhere in the Greater Paris region known as Ile de France, home prices declined, falling 1% in the Val d’Oise, north of the capital.

But the real shock stats are to be seen in housing sales. Year-on-year sales of all homes plummeted some 17% in May in France. In Ile de France, sales tumbled some 21%.

 

Property agents and analysts here, echoing their counterparts in other stricken countries, blame the trend on higher borrowing costs and a generally sour mood among consumers trying to cope with soaring food and oil prices. Some say that high petrol prices make more people reluctant to buy property too far from cities.

 

One leading French real estate agency has predicted that home prices could swoon by as much as 15% over two years.

 

But the picture is much cloudier elsewhere in Europe. France has actually been relatively lucky – shielded from the worst ravages of the housing slump.

 

Britain, whose property bonanza was heralded across Europe until recently, saw house prices fall for an eighth straight month in June. They now stand 7% below last year’s highs, according to a survey by the Nationwide building society.

 

In Ireland, meanwhile, where the Celtic Tiger's roaring growth has sputtered to a halt, GDP swung into reverse in the first quarter, falling 1.5% from a year earlier. Housing prices there have crumbled some 10%, while in Spain they are seen falling around 7%. France’s Les Echos daily says there’s a glut of about a million unsold homes on the Spanish market.

 

And there may not be immediate relief in sight, as homeowners continue to see property values fall and credit becomes ever tighter. Indeed, the European Central Bank is poised to raise interest rates by a quarter percent on Thursday as it pursues its efforts to strike a hammer-blow against record-high eurozone inflation.

 

The only ones to have emerged largely unscathed, notes Les Echos, are Germany and Switzerland. They dodged the housing-market fever of recent years and most of their citizens rent, as oppose to buy, their homes.