House prices in France are likely to fall by around 10% this year, according to a leading French estate agent, with other reports suggesting they may drop by the same amount next year.

Laforêt Immobilier, a leading national French estate agency with around 875 offices throughout France, registered an average house price decrease this year of 6.1% by the end of October, whilst the price of apartments was down by 7.1%.

They predict that prices will continue their descent to 10% by the end of the year.

‘We are seeing a growing number of sellers, desperate to sell for various reasons, having to sell their property at prices around 20% lower than those advertised’, explained the Bernard de Crémiers and Jean-Michel Khider at a press conference recently when they published their property market report.

Perhaps not surprisingly the French agents blame the relaxation of bank mortgage lending practices in 2006 and 2007 for the current crisis, which they say tipped the balance away from some stability in the market, resulting in an unnatural continued growth in prices.

Within the last few months, however, the banks had turned volte face, with the result that there is now a mortgage shortage, which the agents blame for a reduction in sale transactions of 25% in the year.

With mortgages difficult to source, it means that the negotiating position of cash buyers in the market is now very strong.

The average time to sell a house had stretched from 75 days to 94 days, and the number of properties held by the agents on their books has nearly doubled between 2006 and 2008.

Not only are foreign buyers fewer in number, but young couples also seem to have deserted the market place, and investors are also holding back.

The biggest slowdown is occurring in the price range €120K to €250K. As properties in this price bracket represent around 80% of the market, the jolt has been a severe one.

Whilst estate agents and private vendors are clearly finding these difficult times, many have also come to realise that now is not the time to cut back on advertising, but to increase the level of their exposure in the market place. This view is reflected in listings on our own site, which, far from going down, have actually increased quite significantly in the past few months.

As might be expected, the market picture is not a uniform one across the country, with prices of two-bedroomed properties down by as much as 11.7% in Nantes and 8% in Marseilles, whilst in Nice they are down by 3.5%, and in Bordeaux by 2.8%. Even Paris does not escape, with a price reduction of up to 3% apparent since September, making property in the capital and throughout France more affordable.

The figures from Laforêt give some corroboration to those published recently by FNAIM, the national estate agents association, who reported that prices dropped by 1.2% in October. Over the past three months they had dropped by 4.3%.

Nevertheless, the Laforêt prognosis is slightly more pessimistic than that from FNAIM, who forecast recently that prices would drop by up to 8% by the end of the year.

No-one is predicting the situation is going to improve in 2009, and it is now arguable that the greater threat to the market is unemployment, not the credit squeeze.

Opinion is now fairly unanimous that, with unemployment on the increase and credit conditions tight, prices will drop next year by around a further 8%-10%.

If so, that will represent a price reduction of around 20% in two years, a drop that Laforêt consider is now the minimum level needed to reboot the market.

Also see: French Property Market Report