House prices went down by 1.9% in the first quarter of 2008, but a crash is unlikely, say French estate agents.

Most of the drop occurred in March, when house prices went down by 1.6%. By contrast, the price of apartments remained stable over the quarter, and actually rose in March.

On a rolling annual basis, house prices have risen by 3.1% over the 12 month period to the end of March 08. Much of this overall increase can be attributed to price rises in Paris and the South East. By constrast, in the South West prices have barely moved over the past two years.

Whilst FNAIM, the professional body of estate agents, considers that the world financial crisis raises the possibility that prices will continue to drop, they forecast that a more likely scenario is that prices will remain flat.

The agents take the view that credit conditions in France remain favourable, and that the overall economic outlook is broadly favourable. They also consider that there remains a sizeable underlying demand for housing.

It is also important to note that the level of accumumulated household debt that characterises many Anglo-Saxon countries is not something that is a feature of the French economy. In France, mortgages are based strictly on income levels, where they are capped at a maximum of one-third of household debt.

No doubt some of the prognosis from the agents may be down to them talking up the market, and certainly several other recent studies have forecast a drop of around 3% in 2008.

It may also be the methodology adopted by FNAIM, whose figures are based more on transactions in the urban areas rather than the countryside, where sales are not so numerous.

It will be interesting to see the figures that eventually emerge from INSEE, the national statistical office, whose base is larger than that of FNAIM, and who might be expected to have less of an axe to grind. The problem with their figures is that they are several months behind the market, so do not give a precise picture of current trends.

However, it would be a mistake to consider that prices throughout France are on the slide. Particularly in the City of Paris and the South East prices continue to rise, albeit at a modest rate.

As the following table shows, there are also hotspots in various parts of the country. Notable increases in the past year have been in Le Havre (+13.1%), Biarritz (+8.2%) and Toulon (+8.4%).

Conversely, decreases can be observed in Aix Les Bains (-3.5%), Bolougne Sur Mer (-3.3%), Colmar (-6.5%), La Rochelle (-6.6%), Tours (-3.9%) and Vichy (-9.7%)

As always with such tables, you should take them as a general guide only, as the value of an individual property will depend on, inter alia, location, condition, and size.

Property Prices

Source: FNAIM Apr 08