France – Housing market: Recent developments and outlook for 2017-2018, Slight fall ahead
The housing market had a record year in 2016, with very high transaction volumes, reaching the level of the highs of the previous housing boom (2006-2007). The housing market continued upbeat in early 2017 but could see a slight dip in the second half and in 2018. Mortgage lending rates began to rise very slightly in early 2017. This trend seems likely to pick up gradually on the back of the slow rise in 10-year OAT rates. Moreover, prices are still high and have begun rising again.
- Recent trends in pre-owned and new-build - 2016: A record year - 2017-2018: risk of a slight dip
Extract: Slight increase in lending rates
Mortgage lending rates will be the chief factor determining market direction in 2017-2018. Rates began to rise very modestly in February, to 1.54%. Because mortgages are mainly fixed-rate loans, with an effective repayment period of around 10 years, the level of lending rates depends in the main on the rate served on 10-year government bonds. These 10-year OAT rates began to edge up in late 2016. Our preferred scenario is that of a very gradual rise in 10-year OAT rates towards 1.1% at end-2017 and 1.5% at end-2018 for at least two reasons. The first reason is the rising inflation, which can largely be explained by base effects driven by rising oil prices. The second reason is the rise in US long-term rates, in connection with low unemployment, rising inflation, and higher growth forecasts. In these conditions, lending rates are forecast to rise modestly over the coming quarters.