It is becoming a little difficult to properly understand just what is happening in the French housing market at the moment.

While the French estate agents association FNAIM reported earlier this month that house prices rose by 3.6% in the second quarter (apartments by 4.2%), a detailed perusal of the figures shows that they actually went down two months out of three! Only in April did prices go up.

On this basis it may well be that the April increase was something of a statistical aberation. Or was it wishful thinking?

It was certainly controversial, causing the resignation of an executive of FNAIM, who considered that the sample from which the April figure was drawn was not large enough for a meaningful analysis to be undertaken.

The row merely served to confirm amongst critics that FNAIM have been trying to talk up the market, by underplaying the extent of the downturn that has been taking place.

Given that members of FNAIM depend for their living on a healthy housing market that is hardly a startling revelation!

However, FNAIM have been reporting falling house prices in France for the past year or more, and last January published the view that the outlook for both 2009 and 2010 was for a continuing fall in prices.

Indeed, in their latest report they state that they hope prices continue to fall, as the only way that a recovery in the market will occur! Only by making houses more affordable do the agents consider more buyers are going to enter the market.

It seems that, despite a fall in interest rates and a range of other fiscal incentives introduced by the government to stimulate the market, the impact thus far on market activity has been marginal.

While some developers are reporting a significant increase in sales of new property in some areas as a result of the tax incentives introduced under the Loi Scellier, the market for older properties remains in the doldrums.

Sales in 2009 are around 30% down on 2008, which itself was down on 2007. Given the wider economic problems that beset the country and the world at the present time this is inevitable.

Less expected is the fact that the agents consider prices have dropped by an average of only 10% in the year. Few may be inclinded to believe it, except for the fact that even this estimate is considered on the high side by the French notaires, who believe the average annual fall is still in single figures.

Nevertheless, as the table below shows, the average movement in prices does disguise substantial local variations, as both FNAIM and the notaires do acknowledge.

Their figures also show higher percentage reductions on the more expensive stock, whilst prices of houses at the bottom end are showing greater resistance.

While there are many reports of sellers accepting offers of up to 20%-30% below the asking price, this should not necessarily be taken as an indication that prices are falling by the same amount. Asking prices are never a reliable indicator of actual sale prices; one reason why we do not publish any indicators that measure the housing market on this basis.

The general view from most analysts is that there is a ‘wait and see’ attitude amongst both buyers and sellers. Sellers are sitting tight in the hope that prices will pick up, while buyers are conversely delaying entering the market in the hope of a further reduction in prices. The general level of intransigence on both sides is one reason why analysts do not consider there will be a market crash.

FNAIM are now urging their members to make an effort to persuade sellers to be more modest in their financial aspirations, and to not take on a property unless they consider the seller is prepared to accept a realistic valuation.

There is no doubt that bargains can now be found in France, although many sellers do seem reluctant to proclaim it very openly. Sellers need to be tested with offers, and cash buyers may be surprised at just what sellers are prepared to entertain.

Source: FNAIM July 2009