In These New Times

France weathers worldwide housing price bust
October 9, 2008 The Web in France
France and especially Paris seem set to withstand the worst of the drop in residential real estate prices.

It’s only news in the US — the real estate boom is well and truly over. prices are falling around the country as foreclosures turn real estate auctions into fire sales. The trend, albeit on a less catastrophic scale, is starting spread around the world, with Britain, Spain and Ireland seeing home prices falling. France has begun to feel the effects of the housing-price meltdown trend, but some signs indicate that France, and Paris in particular, will weather the storm better than most countries in Europe and certainly better than the US.
Home prices in France have appreciated steadily over the past 10 years. Nationally, average prices in France more than doubled in the decade to 2007. But now France home prices are appreciating at their lowest rate in 10 years — and even falling in some areas for the first time. Still the rise could hardly be characterized as the “bubble” seen in other markets where prices soared beyond most people’s wildest dreams. The French penchant for regulation and bureaucracy kept a lid on unbridled speculation. Taxes and stricter banking rules had kept the rally more discreet than in more free-wheeling British and Spanish markets. Just as the surge in France was less spectacular, the hit to the housing market may be similarly muted. Mortgages in France have long been at low fixed interest rates and the French as individuals carry some of the lowest debt in Europe.
However, with the mortgage banking and credit crisis in the US influencing and affecting markets around the world, banks in France may exercise more caution in issuing mortgages in future, which will make it harder for new home buyers in France to enter the market. This could lead to a fall in prices as supply languishes and demand is curbed by financial constraints if not by the desire of prospective home-buyers.
Still, conditions in France suggest that while it will not be immune to the slowdown of the real estate market, it will see a gentle leveling off rather than a full-blown slump. Anyone having bought five years ago or more will still have made a tidy sum on their investment.
And then there is Paris. With its history, fame and popularity as a tourist destination and space so limited, old homes are priced several times above the national average. Demand for housing is still strong as students and young professionals in France see Paris as a great place to live. And foreigners looking for apartments and second homes for investments and leisure make up more than 10% of homebuyers in Paris. Even with the euro high against the US dollar, a Paris home might seem like the smartest place for your money to live, especially if you can occasionally live in it too. Prices may rise and fall, but one principle holds true in real estate — location, location, location. For many France –and especially Paris — is the location of choice, and that more than anything should help home prices there retain their value.