According to forecasts by Standard & Poor, French property prices are expected to decline by 4% in 2014 but then increase in 2015 and 2016 with uplifts of 1% and 2%. S & P is surprised by the resilience of the French market following its “weak economy and the continuing rise in unemployment,” and the fact that “economic activity stalled in the first quarter with a decline in consumption of 0.5% ”.
S & P also noted that the VAT increase in January has been a temporary negative factor for French property prices, but more importantly, it highlights ” the continued deterioration of real disposable household income (…) due in part to higher Income taxes in 2013 as new augmentations are planned this year. ” The market resistance is attributed to a structural cause of a chronic imbalance between supply and demand for housing. In a country where the population remains strong, housing construction last year was at its lowest level since 2000.
The other explanation is the low interest rates that have steadily declined to reach a low of 2.85% in June. “The resilience is misleading , ” said S & P. These very low rates support demand, but mainly the most creditworthy buyers. If rates were to increase rapidly due to an external shock (S & P considers this unlikely) the response of the real estate market would be fast. In other words, we should expect a drop in prices. According to their simulations, Dutch and Portuguese markets are more sensitive to rising interest rates. This is explained by the fact that the recovery of these markets is still very recent (see table below) and fragile, and their debt still very high household
Recovery in the majority of countries
S & P notes that the very accommodative monetary policies of central banks support a recovery in property prices in most European markets, but they do not evolve at the same pace. It provides for the year increased property prices in the UK (the highest at 7%), Germany and Ireland (both at 4% ).
In the UK, the housing market remains supported by a strong economic recovery. In the last 12 months (to June), prices rose 9.7%, the largest increase since 2007. From new increases are expected, but weaker than 2014 due to the tightening of monetary policy credit.
European real estate prices: the forecast from Standard & Poor’s:
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