by George Dorgan
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European national central banks released European household wealth reports in Spring 2013. According to that data, “median” German households were far poorer than many of their European counterparts. Based on 2012/2013 data we compared apartment prices and discovered that French prices were strongly overvalued or German ones undervalued.
We wanted to know if this is still the case in 2014 and integrated our 2012/2013 data with the one of 2014. We discovered that German home prices are quickly recovering their delay against French ones. Hence German wealth is ticking up again.
According to the surveys of European National Central Banks (NCB), Germans are one of the poorest countries in European comparison. The question is how accurate the data was and, in particular, how far it reflected recent home price developments, or if survey data was some years old.
Source WSJ and ECB
Still in 2012, home prices were often lower in Germany than they were in other European countries. This happened despite higher German salaries and lower other living costs compared to most of their neighbours. Hence Germans often have a higher “residual income” after rent and rent equivalent. By own experience, prices in France, but also in the French-speaking Switzerland, are often far higher than in Germany or in the rest of Switzerland respectively. Life in Paris is difficult because the gap between salaries and rents/living costs is very slim. Even if the German home-ownership rate of 44% is relatively weak, rising German home prices in the years since the NCB surveys point to rising German wealth.
German real estate prices in cities are rising rapidly
French real estate has not Performed since 2011
Is now a good time to buy French property?
British home buyers are being tempted to purchase property in France thanks to new record low 20-year fixed rate mortgages, and favourable currency swings.
But property remains overvalued in France with some experts suggesting prices are 30pc too high, leading to questions over whether now is the right time to buy.
Falling mortgage costs
Britons with a 20pc deposit can secure a 20-year fixed rate of 3pc, according to broker French Private Finance. The cheapest rate was 3.1pc last month and 3.75pc a year ago.
Source The Telegraph, 2014
French Mortgage approvals drop by a third
They add that the fall in new mortgages approved has seen a 32% plunge since 2011.
The CBRE report states: “While banks have tightened their mortgage lending criteria and are asking for higher deposits, the main reason for the fall in mortgages is because of the slump in demand from home buyers.”
To underline the precarious state of the housing market, the construction of new homes is also heading downwards.
In the first three months of this year, only 83,900 units were started – a drop of 11.2% from last year. (source)
#Paris home prices, up 37% since 2009, sputter as Hollande’s taxes threaten boom Bloomberg , 2013Are real estate prices too expensive in France?
European national central banks released European household wealth reports in Spring 2013. According to that data, "median" German households were far poorer than many of their European counterparts. Based on 2012/2013 data we compared apartment prices and discovered that French prices were strongly overvalued or German ones undervalued. We wanted to know if this is still the case in 2014 and integrated our 2012/2013 data with the one of 2014. We discovered that German home prices are quickly recovering their delay against French ones. Hence German wealth is ticking up again. - Click to enlarge
Real estate price has increased quicker than nominal disposable income and the real estate price to income ratio is currently still very high almost at an historical high. This is really problematic as it means that it is very expensive to buy a house or an apartment specifically when you are a first buyer as you cannot resale a house in order to buy a new one. The market does not work well….
Real estate price is high. But as long as households can wait there will be no downward trend on average but as income is low compared to this price the price will not be able to increase rapidly. The market is probably on an inefficient equilibrium.
Comment G. Dorgan: It is very interesting that the needed price adjustment is so difficult to realize in France. In the U.S., in Denmark or the Netherlands, the needed price correction was far quicker. This missing mobility of workers considerably weakens the French economy.
Real Estate Price in 2014 against 2013
According to Eurostat real estate prices in France fell by 1.1% and in Italy by 4.8% in 2014. They are up in Northern countries that are obsessed with owning a property, but that also have a history of higher inflation rates. Those are Sweden, the UK, Ireland, Iceland and the Baltics, with rises between 5 and 10%. (Source The Telegraph)
According to the German F+B, condo prices are up 5.2% in Germany.
Detailed price comparison: Gap between Germany and France is narrowing
In the following we compare prices more in detail. Therefore we used apartment prices from the site “Meilleur Agents” in France and from F+B in Germany. Both data sets reflect transaction prices and show price in euro per square meter.
“Meilleurs agents” was able to determine the average price per French district (“department”) including villages. This means that prices in a town belonging to this district should be a bit higher. The German data was concentrated on the 50 most expensive and the 50 cheapest ones out of a total of 504 German towns.
Flats in Paris (8294 €/m2) were twice as expensive as in Munich (4120 €) still in 2012/2013, but in 2014 the gap narrowed to 7840 versus 4800€. Under the 25 most expensive towns/districts, only 8 were in Germany as for 2012/2013 data. In 2014 already 12 out of the 25 top entries are in Germany. Based on 2012/2013 data, we counted 17 German towns under the 50 most expensive areas, the other ones are in France. In 2014, this number rose to 25
Geographic Divide between Southern Germany and East, between Paris and the rest of France
The most expensive French districts are Paris, in the Paris area and the Cote d’Azur. Moreover, prices in the areas close to Swiss Geneva, in the departments Haute-Savoie and Savoie are quickly rising. Most expensive German towns are near to Munich in Bavaria or near Stuttgart in the South Western Baden-Wurttemberg and in the Frankfurt area. Prices are cheap in Eastern Germany including some regions near Berlin. Foreign demand helped Berlin to recover quickly, from 1790 to 2100 €/m2.
The 2012/2013 data showed that the cheapest 52 towns/districts were all in Germany except the French departments of Creuse and Nievre. Some Eastern German regions show outright asset price deflation, but most have finally stabilized.
Home prices in Eastern Germany were so cheap in 2011 that Poles from the border town Szczecin (German name “Stettin”) prefered to live in the neighbouring German towns. Quick state-enforced wage adjustment between West and East Germany that left many Eastern Germans without jobs. Emigration from East to West led to a housing oversupply in the Eastern part. On the other side, lower wages in Polish towns helped to create jobs. Biut they created a rapid home price increase, that left prices higher than many are able to afford.
The full data is contained in the following table; the reader is able order the data clicking on header names.
Flat Prices in Germany and France in 2012/2013 compared to 2014
Sources:
F&B report on German home prices Q4 2012
F&B report on German home prices Q2 2014
France: Meilleur agents prices in France
Further references:
Some academics, like De Grauwe, did not trust the national banks’ survey data and elaborated their own statistics. De Grauwe also incorporated the wealth of companies.
European Wealth Reports: Why “Median” Italians are Far Richer than Germans
& Portfolio | Finanzfluss Live
#versicherungen
5 comments
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George
2013-05-29 at 19:11 (UTC 2) Link to this comment
Let’s see: 8000 euro/m2 in Paris, 4000 in München. What about Switzerland? 10000euro/m2 in Zürich and Zug, I don’t dare to look at Geneve. Even little town Lenzburg is more expensive than München and rather competes with Paris. So what about it?
My two hours research found an increase of about 50% in the prices of houses from 2007. I looked at Zürich, Aargau and Zug.
I see only two possibilities: CHF is way overvalued or are we witnessing the mother of all bubbles?
Otherwise, good and informative article.
DorganG
2013-05-29 at 20:29 (UTC 2) Link to this comment
The Swiss housing market is currently recovering that what Ireland, Spain, US or UK saw until 2007. With the difference that income to price ratio is still ok (see image attached). 10000 €/m2 in Zürich or Zug is still ok, because Swiss income is twice as high as in Germany or 3 times more than in France.
I judge that the boom has still 10 years to go.
Where else should the Swiss put the current account surplus? In slowing emerging markets or slowing dying US or Europe?
Manu
2013-07-09 at 22:45 (UTC 2) Link to this comment
Living in France close to GE.
Buying a home in Switzerland which you kind of never reimburse lend capital for, where your mortgage interests are tax deductible, similar to the NL (at least until 2012). Does not this taint swiss real estate prices?
Buying a home in France where you reimburse a decent part of capital in a quicker way. Household debt to disposable income is low (I mean, 75% in 2011 maybe). Is not that way of buying healthier ?
Isnt there a risk to see in Switzerland a similar situation than in the Netherlands, which had a similar love of “aflossingvrij” mortgages ? NL Household debt to disposable income in 2011 was 300%. Prices keep dropping since 2009.
Sorry for the naive remark, I am not a specialist, just trying to cross the differents charts I see on diverse sources
DorganG
2013-07-10 at 08:18 (UTC 2) Link to this comment
True that Swiss have high private debt, but they have also high assets. Instead of reimbursing they invest in stocks, bonds, gold, etc. With rising asset prices in recent years, this strategy was successful.
When your economy is better over the long-term, then currency appreciation, better more capital availability and innovation dampens inflationary effects. Since Swiss banks seem to be sure that Swiss inflation is always low they allow not to reimbourse.
Since the introduction of the cap on the franc, things have changed, the currency does not appreciate any more. The risk you are speaking of, exists.
John
2016-03-10 at 15:47 (UTC 2) Link to this comment
Wow, very detailed article. The data is a bit dated, but it is interesting to see a historical perspective.
Interestingly, last year (according to Tranio.com – real estate expert) foreign investors spent €28.1 billion on commercial property in Europe’s leading economy, representing 51% of the total investment amount in the market according to JLL, a global real estate services company. This marks a five-year high for inbound investments, which hadn’t occupied more than 30–40% of the market share in recent years.