Standard & Poor’s predicts two years of price decline

The rating agency expects a fall of 5% in the French real estate prices in 2013 and 2014. Whilst this is a small reduction it seems to be one of the largest in Europe.

Economists from Standard & Poor’s consider that the decline in property prices, which remained limited in 2012, should continue on this pace this year and next. While the French market continues to suffer from a “weak” economic environment and still “sluggish” credit conditions despite historically low interest rates, buyers’ confidence is affected, which should remain “low” in 2013 and, presumably, in 2014.

A limited adjustment

In this context, the rating agency doesn’t expect a increase of transaction volumes but predicts, concerning prices, a drop of only 5%, in nominal data, for this year and the next one. After a decline of 1.1% estimated for 2012, “a rather limited adjustment in the light of the long period of uninterrupted growth from 2000 to 2007.” Standard & Poor’s, which bet last year on a cumulative decline of 15% by the end of 2013, says that the market is sustained by the imbalance between supply and demand for housing and the lack of alternative media to long-term investment for individual investors.

The French decline in house prices should, despite all, be one of the strongest in Europe: except for Spain and Netherlands, for which Standard & Poor’s predicts respective drops of 7.8% and 5.9% in 2013 and, 6% and 2% in 2014, all other countries in Europe should rebound, if not this year, at least the next. This is the case for Italy (-1.6% in 2013, +0.5% in 2014), Portugal (-1.1%, +0.5%) or United Kingdom (-0.9%, +0.5%) in particular. Should be noted that Belgium and Germany should go against the trend, with price increases between 1% and 3% this year and, between 1.6% and 3% the next one.

John Busby of French Private Finance says, “This prediction from S&P is a bit more aggressive that the predictions from the FNAIM which predict stability over the next year or perhaps a small fall of 2%. As with any property market there are vast regional variations. Rural areas will most likely see higher levels of price reductions, whilst popular areas such as Paris, the Alps and Cote d’Azure should remain stable. This is in fact good news for non-resident buyers who can take advantage not only of the ultra-low interest rates but also the willingness of sellers to negotiate on price.