Are Prices Tumbling

12 July 2007 by Karen Fawcett 344

Economic indices and nationwide news reports currently are stating that the US housing market is heading south. Some forecast a more dramatic fall within the next six months and are waiting for the crash. As with the stock market, “crash” may signify more of a correction than prices hitting rock bottom. Developers love to build. During certain periods, they’ve been known to go out on a limb, stretch their resources and count on quick sales and/or rental turnarounds. Most of these entrepreneurs have had their periods of reckoning and have either been forced to lower prices of units, toss in all kinds of incentives, obtain preferential mortgages for buyers and include everything – including build-outs that, during spiraling markets, they would have been able to charge a pretty penny. The Urban Institute, a non-profit think-tank based in Washington DC, released a report in July, 2007 stating the cost of single family homes in some parts of Virginia was down nearly 12%. DC area condominium sales have plummeted as much as 54% in the past year, although that’s the extreme. Fewer homes and apartments are being constructed in the area and an increasing number of potential buyers are being turned down for mortgages. If you read the weekly New York Times column that documents the asking versus selling prices of the area’s real estate, you’ll often see the selling price is lower than what the owner (and agent) had in mind. The initial amount may have been exorbitant but it goes to show bidding wars are less the norm these days. Agents don’t insist buyers add escalation clauses unless the property is very under priced. In other words, it’s becoming a buyers’ market. The days of potential home or apartment owners queuing up in front of an “open house” (for as far as the eye can see) appear to be at a hiatus, even on the boom-boom West Coast and in Florida. Urban Institute senior researcher Peter Tatian says, "Prices are coming back down to earth. We’re approaching normalcy.” Prices in Paris and many other EU and Asian cities don’t appear to be following the same downwards trend. The majority of the transfer costs of apartments in the City of Light are at all-time highs. Some neighborhoods have leveled off during the past couple of years and there’s more inventory. Other properties have skyrocketed. It’s a question of supply and demand. In spite of the weak dollar, Bonjour Paris readers are frequently looking and succeeding in investing in a pied a terre to call their very own. Some owners rent it out when not in residence. As a result, there’s an entire new mini-industry of people acting as apartment managers. Long distance management is nearly impossible considering the time difference. Landlords need to have someone who’s local to meet and greet and insure the apartment is up to snuff. The rental market (both short on long-term) is extremely competitive. Americans are reputed to be pickier than many Europeans who only recently have become kitchen and bathroom design fixated. Unless you live in the country in a chateau, most Paris apartments tend to be smaller than those in the US, even ones in Manhattan And don’t expect an unfurnished Paris apartment to have a kitchen complete with appliance, much less cabinets. New Orleans, La. native Timothy Ramier, a specialist in International Tax, Trust & Estate Law and associated with Porter Reeves Ramier, Société Civile de Moyens, says, ‘People are waiting for the Paris real estate market to take a dive, but it appears to be more rumor than reality. Compared to London, New York, Tokyo, Moscow and some other major cities, Paris real estate is a bargain.” Ramier explains that French and European banks don’t want to be in the business of repossessing property. They aren’t into foreclosures and insist if they’re issuing a mortgage, the borrower take out a life insurance policy to cover the debt. With the advent of an increasing number of EU banks establishing offices in Paris, the lending market has become more competitive. But skip the idea of putting only 5% down. The average duration of a mortgage is twenty years, and buyers are required to invest at least 25% of the cost of the property – unless they’re long-time clients and have a substantial portfolio with the lending bank. Contrasted with the US, most French citizens don’t live on credit. The majority have debit cards and don’t say, “Charge it” thus incurring bills and interest payments galore. Will the recently-elected French government have a…

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Developers love to build. During certain periods, they’ve been known to go out on a limb, stretch their resources and count on quick sales and/or rental turnarounds. Most of these entrepreneurs have had their periods of reckoning and have either been forced to lower prices of units, toss in all kinds of incentives, obtain preferential mortgages for buyers and include everything – including build-outs that, during spiraling markets, they would have been able to charge a pretty penny.

The Urban Institute, a non-profit think-tank based in Washington DC, released a report in July, 2007 stating the cost of single family homes in some parts of Virginia was down nearly 12%. DC area condominium sales have plummeted as much as 54% in the past year, although that’s the extreme. Fewer homes and apartments are being constructed in the area and an increasing number of potential buyers are being turned down for mortgages.

If you read the weekly New York Times column that documents the asking versus selling prices of the area’s real estate, you’ll often see the selling price is lower than what the owner (and agent) had in mind. The initial amount may have been exorbitant but it goes to show bidding wars are less the norm these days. Agents don’t insist buyers add escalation clauses unless the property is very under priced. In other words, it’s becoming a buyers’ market.

The days of potential home or apartment owners queuing up in front of an “open house” (for as far as the eye can see) appear to be at a hiatus, even on the boom-boom West Coast and in Florida. Urban Institute senior researcher Peter Tatian says, "Prices are coming back down to earth. We’re approaching normalcy.”

Prices in Paris and many other EU and Asian cities don’t appear to be following the same downwards trend. The majority of the transfer costs of apartments in the City of Light are at all-time highs. Some neighborhoods have leveled off during the past couple of years and there’s more inventory. Other properties have skyrocketed. It’s a question of supply and demand.

In spite of the weak dollar, Bonjour Paris readers are frequently looking and succeeding in investing in a pied a terre to call their very own. Some owners rent it out when not in residence. As a result, there’s an entire new mini-industry of people acting as apartment managers. Long distance management is nearly impossible considering the time difference. Landlords need to have someone who’s local to meet and greet and insure the apartment is up to snuff. The rental market (both short on long-term) is extremely competitive.

Americans are reputed to be pickier than many Europeans who only recently have become kitchen and bathroom design fixated. Unless you live in the country in a chateau, most Paris apartments tend to be smaller than those in the US, even ones in Manhattan And don’t expect an unfurnished Paris apartment to have a kitchen complete with appliance, much less cabinets.

New Orleans, La. native Timothy Ramier, a specialist in International Tax, Trust & Estate Law and associated with Porter Reeves Ramier, Société Civile de Moyens, says, ‘People are waiting for the Paris real estate market to take a dive, but it appears to be more rumor than reality. Compared to London, New York, Tokyo, Moscow and some other major cities, Paris real estate is a bargain.”

Ramier explains that French and European banks don’t want to be in the business of repossessing property. They aren’t into foreclosures and insist if they’re issuing a mortgage, the borrower take out a life insurance policy to cover the debt. With the advent of an increasing number of EU banks establishing offices in Paris, the lending market has become more competitive. But skip the idea of putting only 5% down.

The average duration of a mortgage is twenty years, and buyers are required to invest at least 25% of the cost of the property – unless they’re long-time clients and have a substantial portfolio with the lending bank. Contrasted with the US, most French citizens don’t live on credit. The majority have debit cards and don’t say, “Charge it” thus incurring bills and interest payments galore.

Will the recently-elected French government have a negative impact on real estate prices? Ramier feels absolutely not. “Sarkozy promised the French a change and that’s what they’re going to get. People are upbeat that the new President is going to give a major boost to the economy. “

If that’s the case, it’s more than likely that the Paris housing market bubble won’t burst. Come to think of it, perhaps people are better off investing in France than in the US.

The only caveat, cites Ramier, is that they had better become or consult someone who’s an expert in French (Napoleonic) law. It will likely be the best money any potential real estate purchaser will spend.

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