The Government of France’s Jacques Friggit of the Internal Audit and Forecasting Department (of the Ministries in charge of the Environment, Sustainable Development, Energy, Transportation, Housing, etc.) presented a compelling argument that French house prices are far out of line with fundamentals such as rents, incomes or supply.   His data show that prices were relatively stable from 1965 to 2000 and were relatively undervalued in the 1990s. Prices began to rise steeply between 2000 and 2007 – tripling in value. There was only a small correction of 10 percent in 2008-09, which was followed by an even bigger rebound.  His analysis of the fundamentals in the French housing market, combined with international comparisons is worth noting. He concludes that even correcting for inflation and real income increases, prices appear overvalued and ripe for a correction.  The question is how that correction will occur. The financial environment and “myopia” of market investors will be critical factors.

[Link to presentation]

[Link to paper (French)]