‘Unprecedented crisis’ in the French single-family housing sector

In today’s links was a Figaro article which pointed to a slowdown in French housing transactions in Q2 2012. As sales are the first to decline in a housing bust, this turn of events bears watching, especially because France is embarking on its most audacious austerity plan in at least three decades with 33 billion euros of fiscal adjustments in the coming years.

Two further articles on the slowdown were published in L’Expansion giving a little more color on the slowdown. First was an article on the expected slowdown in single-family home construction where nearly one in ten jobs are expected to disappear in 2012 alone. The article says sales are at the lowest levels in six years.

Here’s a brief translation:

The single-family home sector is going through an unprecedented crisis: 14,000 jobs of  150,000 total will be erased in 2012. The cause: flagging sales, which this year should top the “bar” of 150,000 units, versus 180,000 in 2011.These figures are the worst since 2006.

“The decline in sales is widespread. There is no region that is not in the red, even Brittany, Pays-de-Loire, the south-west and Languedoc-Roussillon, which had robust activity in recent years,” UMF president Christian Louis-Victor told AFP.

Sales of single-family homes, a sector that has accounted for more than half of housing construction since 1976, fell by 18% over the last twelve month period (August 2011-July 2012) compared to the previous twelve months, according to the UMF.

“The government’s goal of 500,000 starts in 2013 is unattainable.”

So there you go. House sales are waning and housing starts, the homebuilding sector, and residential investment generally are going to take it on the chin as a result. This alone will have a negative effect on French GDP statistics. 

A second article goes into greater detail on the extent of sales and price movements in the sector:

Sales of existing homes fell again between April and June, both in the capital (21% compared to the same period of 2011) and Ile-de-France (also 21%), according to figures released Thursday by the notaries of Paris-Ile-de-France. The trend is the same at national level. At the same time, prices continue to fall slightly from one quarter to the next: -0.3% in the second quarter after -0.3% already in the first. But this average figure for the whole of France masks very large variations. In Paris, for example, prices started to increase (+1%). Explanations by Sébastien Lafond, founder of meilleursagents.com.

How do you explain the drop in transactions?

Firstly, it should be noted that notaries calculate the volume of transactions on the basis of deeds signed in the first quarter of 2012. For them, the decrease is about 30%. But in fact, it is more important and we are left with volumes down 30 to 40%. We are witnessing a virtual freezing up of transaction volume. This decline is due to the fact that over a period of a year and a half, we lost 40% of buyers and 30% sellers. The fact that we lost both buyers and sellers explains that we have a lower volume without real price collapse.

Obviously the sanguine perspective is the happy talk of an interested party. Time will tell whether this volume decline presages a steeper falloff in prices than we have seen to date. But what should be clear is that prices are already drifting lower while housing construction is falling off at a fast clip. With austerity increasing and the Bank of France already lowering its estimates for GDP, it seems like more pain is coming in French property. And this will have knock-on effects. The decline could even turn into a rout of Dutch or Danish proportions given the elevated level of French house prices.

I will keep you informed.

Note: none of this has anything to do with plans for taxing second homes in France, though this tax could put more downward pressure on the market.