French property prices - The ups and downs

EVERYBODY is in agreement that French property prices are falling. What's not clear is by how much. It would seem that there are as many forecasts on the French housing market as there are economists in France.

Accurate economic data in France lacks the transparancy of some neighbouring economies. Pricing forecasts come from a number of different available sources. The result is a wide ranging set of predictions and statements depending on the data to hand.

Essentially it all boils down to data from two groups, The Optimists and The Pessimists.

The FNAIM, the Optimists, annouced yesterday that they expect the fall in houses prices to finish up at between two and three percent for 2008. 

FNAIM handle about half of all housing transactions in France. These form the basis of their position on house prices.

Some industry experts have expressed the opinion that FNAIM's data is flawed because it's based on too small a sample.

At the opposite end of the scale are the real estate agencies.  On average, they predict the fall this year to end up at around 10%.

The more sceptical analysts are convinced that this is a ploy by estate agents to force vendors to reduce asking prices in an effort to stimulate the French housing market. There's no doubt that every agency, including our own, has seen such price reductions but not across their entire portfolio.

Finally, there are the notaires who base their figures on a different set of indices and transactional data.

The notaires, perhaps predictably, maintain that the fall in property prices sits somewhere between the two.

So, somewhere in the region of two to 10% for 2008. That should cover it, according to the experts.

But we're not finished there. They are other events in the calendar that could alter this position.

As I write, President Sarkozy is announcing his, so called, anti-crisis plan to workers at a Renault factory in the north of France.

The  French government intend to spend around 19 billion euros, approximately 1% of the country's GDP, to bolster the French car industry and stabilise the French housing market.

Sarkozy wants house prices to continue to fall. In the 10 years up until 2007 house prices in France doubled which he believes was a crisis in the making. 

The President wants to maintain stability in the French housing market in an effort to attract more foreign investment.

Measures intended to help the property market include 0% interest rate for poorer households, adjusting the income threshold to more easily facilitate mortgate approvals and the purchase of 30,000 new homes to help a flagging construction industry.

In the US, because of a repatriation of funds and risk aversion, the dollar's continued strength against the euro has led to a recent spike in demand for french property.

Fall in demand for the euro from the US due to a lack of confidence in the success of a 120 billion euro EU stimulus package has also helped to strengthen the dollar.

In the UK, we will have to wait to see the effect of the today's 1% interest rate cut on the exchange rate. Right now the Interbank rate is at 1.15875.