The French Housing Market: soft landing in 2018
The housing market saw a record year in 2017. In the pre-owned sector, the number of transactions reached 968,000 sales, up 15% over the year, and an all-time record level. In the new-build sector, sales were also marked but were stable relative to 2017. Pre-owned sale prices picked up slightly, to 4% over the year, with more marked increases in the big cities, especially in Paris.
The upturn is mainly down to two factors: extremely low lending rates, but which are starting to rise; and support measures in the new-build sector.
We do not feel it likely that the market will overheat in 2018-2019. There is no obvious speculative behaviour and no rapid increase in prices or lending rates. On the contrary, a slight dip is forecast (a fall-off in sales and slowing prices) despite the improved economic climate. In fact, signs of a cooling market have emerged since January.
For one thing, the new ELAN housing plan will ultimately prove beneficial via the supply shock and the 4-year extension of the Pinel buy-to-let scheme and the PTZ interest free housing loan. But their gradual refocusing on areas of housing shortages is forecast to cut new-build sales by 8% in 2018.
Secondly, lending rates, which have been extremely low, are starting to rise. This looks set to continue with the increase in 10-year OATs as a result in particular of QE tapering (1.15% forecast for end-2018, 1.55% for end-2019), although the increase should be very gradual. This, combined with rising home prices, will nibble away at households’ ability to buy and make buyers more hesitant and wait-and-see.
In 2018, pre-owned sector transaction volumes are expected to fall by around 6%. In the new-build sector, the expectation is for a fall of 9% (8% in the developer segment and 9% in individual homes). In 2019, pre-owned sales will further erode but are expected to be more or less stable in new-build. Pre-owned prices should be up 3% in 2018, with prices set to slow in 2019.
To know more, you can see our publication FRANCE – Housing Market - 14 May 2018
Olivier Eluère, Group Economic Research