House Prices in France

According to a new report, “Macroeconomic risks related to a correction in real estate prices appear to be relatively contained. The increase in housing prices (over 100 percent in real terms since the mid 1990s) has been supported by stronger fundaments (higher population growth, relatively low supply of housing, and low household indebtedness) than in other countries with rising real estate prices, but also by tax incentives that have fueled demand without addressing underlying supply constraints. There is a perception of price overvaluation, especially in Paris (by 10-20 percent at end-2011 according to staff estimates). However, there is no housing glut or household debt overhang that could trigger a sudden price adjustment. Moreover, stress tests suggest that banks are well placed to absorb the impact of a possible sizable price adjustment owing to tight underwriting criteria (emphasizing sustainability of the borrower’s income, not collateral value) and the absence of nonrecourse loans. The impact of a possible price correction on private demand would also be contained reflecting weak evidence of wealth effects on consumption.”

Posted by at 10:25 PM

Labels: Housing

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