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France’s Overheated Housing Market

Posted by Steve Markowitz on April 6, 2011

On April 1, this Blog posted an article titled “Canada’s Housing Bubble” that reviewed that country’s too rapidly appreciating housing values.  Fitting of the world market, Canada is not the only country showing signs of a housing bubble.  France is experiencing an overheated housing market with the Wall Street Journal reporting the following:

  • The average prices for French homes increased by about 9% in 2010.
  • In Paris, prices have appreciated 18% in 2010.
  • Fixed-rate mortgage lending increased by 73% this February, compared to last year.

One reason for the propped up housing market is the low mortgage rate available to French buyers, 3.5% compared to 6.5% in late 2008.  With the U.S. dollar being the world’s reserve currency, the Fed’s low rate policy is exported worldwide.

But there is another, more troubling reason behind the overheated French housing market.  In 2009, France enacted a law to stimulate this market with a significant tax incentive for buyers.  This sounds early similar to the U.S. government’s meddling in our housing market by cajoling Fannie Mae and Freddie Mac to make mortgages to those that couldn’t afford them.

It is tempting to excuse France’s meddling in its housing market as merely overzealous Progressives who just do not understand the laws of supply and demand.  That, however, infers that the French government and bankers do not understand the causes of America’s housing bubble and its subsequent popping.  That would be a naïve conclusion.

The reasons behind Frances meddling in its housing market are more nefarious and similar to those behind America’s similar folly.  Western countries without significant energy exports are growing poorer, decreasing their middle classes’ purchasing power.  In an effort to offset this reality, central banks have allowed asset bubbles to grow in order to created illusions of wealth, thereby delaying the readjustment in their societies’ lifestyles.

In addition, there are cozy relationships between the political elites and large banks worldwide.  This is driven home by the fact that not one person or company has been criminally charged in the United States for their roles in the investment banks meltdown/ sub-prime mortgage mess.  It is likely that the bubbles being created in France’s housing market and other areas will make the same elites more money before popping.

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