French Unsold New Homes Reach a Record as Economy Contracts

By Sandrine Rastello

Aug. 26 (Bloomberg) -- France's stock of new, unsold homes reached a record in the second quarter, when the euro region's second-largest economy shrank.

The difference between the number of new homes put on the market and those purchased reached 110,500 in the three months through June, the Environment Ministry said in an e-mailed statement sent late yesterday. Sales dropped 34 percent in the quarter from a year earlier, it said.


Higher interest rates in the euro region and banks' reluctance to lend in the wake of the U.S. subprime mortgage market collapse have driven up the cost of credit, just when the fastest inflation in more than 12 years erodes consumer spending power. The French economy shrank 0.3 percent in the second quarter, the first contraction since the end of 2002.

``We're in a situation where there's no reasons to see these factors reverse,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``The real estate market's strength of the past three years has seriously eroded.''

Other figures released today add to signs that the slowdown is deepening. Housing starts dropped 12 percent in the three months through July from a year earlier and home permits fell 17 percent in the period, the ministry said today.

The real-estate slump is affecting the rest of Europe as well. Sagging construction contributed to the German economy's 0.5 percent contraction in the three months through June. Over the same period in Spain, where the housing industry accounts for about 10 percent of the economy, the expansion was the slowest in 15 years.

Jobs, Prices

The slowdown is reflected in French employment figures, too. The number of jobs in the construction sector grew 0.6 percent in the second quarter, the smallest increase since the first three months of 2005, Insee reported this month. Jobs in temporary employment services, which home builders often tap, dropped 6.8 percent.

French Finance Minister Christine Lagarde said in an interview last week that the government is going to revise down next month its growth forecast for the year as she expects the third quarter ``won't be good.''

The lower demand has also started to show in prices of existing homes, which fell 0.8 percent in the first quarter from the previous three months, according to Insee.

In the Paris region, prices of such apartments fell up to 1.4 percent in some suburbs for the three months ended in May from the same period last year, the Paris Chamber of Notaries said yesterday in a statement. Overall, prices rose 4.8 percent in May from a year earlier, the smallest gain in nine years.

In Paris itself, apartment prices rose 1.5 percent, according to the chamber.

To contact the reporters on this story: Sandrine Rastello in Paris srastello@bloomberg.net;