The housing market in France continued to slow over the first half of the year, with difficult credit conditions holding back strong underlying demand.

That was the message earlier this month from FNAIM, the professional body for French estate agents, who released their latest property market survey.

The report showed that over the second quarter of the year, house prices fell 0.6%, following a drop of 1.9% in the previous quarter, meaning prices have tumbled 2.5% over the last six months. However, prices for houses showed a surprising bounce back in June, rising by 3% in the month alone, offsetting falls that occurred in the previous two months.

The market for apartments has held up better, with prices rising by 1.6% over the first half. FNAIM were keen to quash any thoughts that the rise in June augured the beginnings of an improvement in the market, as they pointed to the difficulties faced by first-time buyers.

Against the backdrop of a decline in real incomes and difficult credit conditions, the agents considered that first time buyers risked being ousted from the market. Strong ‘structural’ demand was simply being held back by difficulties in obtained credit. FNAIM also report that something of a stand-off was taking place between buyers and sellers, with the later speculating on a drop in prices, and the former resisting, in order that they could guarantee their next acquisition.

As a result, the French agents are expecting the number of sales for 2008 to be down by around 10% over that for 2007, a figure that is also being reported by the notaires. Some consider this to be even a little optimistic, as Government figures published last month showed new build sales were down by a third in the first quarter over that for the same period in 2007.

Whatever the outcome, it is clear there is a lot of fragility in the market place.

Those looking to purchase a new property can more easily expect to achieve a substantial reduction, as the number of new homes on the market is at its highest for a decade.

As always, there are significant regional variations in the state of the market. On a twelve month timeline prices in the South East having risen by 4.4%, whilst those in the South West have dropped 1%. In the North and West prices have remained stable, and even within the Paris region, the increase in prices over the past twelve months has dropped to 2.3%.

There are even broader variations between the major cities and towns, as the following table amply demonstrates. It shows the price per square metre of property at the end of June 2008, with the movement in prices over the past 12 months.

Table: Property Prices 2007/8

Source: FNAIM July 08

Read our earlier article on the first quarter performance of the housing market in France: French House Prices Drop By 1.9%