2023-12-11 05:06:51
With borrowing rates around 4% and prices falling with difficulty, the market has been slowing down for several months. We explain why.
Soaring borrowing rates, banks more cautious about granting credit, a construction sector at half mast… The real estate market has gradually seized up since the fall of 2022. The specialized site Meilleursagents.com therefore expects fewer than 900,000 transactions to be completed by the end of 2023, compared to 1.2 million in 2021, considered a record year. After years of excitement, “we observe a rupture”, recognizes economist Pierre Madec, housing specialist at the French Observatory of Economic Conditions (OFCE). Is this market slowdown lasting? How much further will rates rise? In which cities are prices falling the most? Franceinfo interviewed real estate specialists.
Why have rates jumped?
In recent years, borrowing rates have gradually fallen, reaching a very attractive level for buyers, around 1% on average since 2016. “We had become accustomed to very low rates, to free money, that’s what fueled the real estate market”, notes Thomas Lefebvre, scientific director of the Meilleursagents.com and SeLoger.com sites. But “the economic conjecture has stalled from autumn 2021″notes economics professor Michel Mouillart, housing specialist.
Under the effect of soaring commodity prices, then the war in Ukraine, inflation quickly spread throughout the economy. To limit the surge in prices, the European Central Bank (ECB) has repeatedly raised its key rates, that is to say the rates at which it lends money to commercial banks. The latter in turn passed these increases on to individuals. At the end of November, the average mortgage rate was around 4.3%.
At the same time, banks have also become more careful about granting credit. To combat over-indebtedness, the High Financial Stability Council has prohibited them since 2022 from lending money if monthly payments exceed 35% of income and limits, with exceptions, the duration of credits to 25 years. Between the rise in rates and these new rules, the number of real estate loans granted has plummeted, falling in October by 43.5% over one year, according to the Crédit Logement Observatory.
Who are the most penalized by this tightening?
Mathematically, rising rates reduce the borrowing capacity of households. According to site calculations VousFinancer.coma couple with 4,200 euros of income per month can only borrow against 228,000 euros over 20 years with a rate of 4%, compared to 300,000 euros with a rate of 1% in 2021. And households who wish to buy their first home, often young couples, are the most affected by the rise in rates.
“Today, the real estate market excludes first-time buyers”adds Séverine Amate, real estate market specialist. “We are not only asking them to have a reliable situation, but also to have a significant personal contribution, around 20% [du prix du bien]“she says.
“Unless you have a family environment that can help you finance this contribution, you are de facto put aside in the acquisition market.”
Séverine Amate, real estate market specialist
at franceinfo
A situation which slows down access to property for the less well-off. “Lapart from low-income households among first-time buyers in the production of credits has fallen by ten points” over the last three years, notes Pierre Madec, citing data from the Bank of France. These profiles do not have the financial capacity to cope with the rise in rates, “unless you buy housing 20% smaller”, observes the economist.
How have prices changed in recent months?
Despite the decline in the number of potential buyers, many sellers are still reluctant to frankly lower their prices. Real estate prices fell slightly, by 0.2% year-on-year in December, according to data from the site MeilleursAgents.com. This decline, although timid, nevertheless reflects the advent of a “new cycle”according to Thomas Lefebvre.
“We must compare with previous years, during which we observed increases of 5% or 6% over one year.”
Thomas Lefebvre, scientific director of MeilleursAgents.com
at franceinfo
“The cities where prices are falling the fastest today are those where the real estate purchasing power of buyers is the most constrained”, he summarizes. In Lyon, for example, prices fell by 7.1% year-on-year in December, according to figures from the specialized site. In Paris, the drop recorded is 5.4% over the last twelve months. For the first time since 2019, the price per m2 fell below 10,000 euros in the capital in September.
This decline is more timid in certain areas, notably on the Côte d’Azur. Thus in Nice, where buyers are “older, richer, with more contributions and therefore have less recourse to credit”, recalls Thomas Lefebvre, the cost of stone has increased by another 2.5% over one year. However, the dynamic is gradually tending to reverse, with a decline of 1.6% in prices over the last three months.
For the moment, the fall in prices on a national scale remains too weak to unwind the market. “Prices are still too high in relation to the low financing capacity of households”note Thomas Lefebvre. “To return to balance, prices would need to fall by around 20 to 25%”calculates Séverine Amate for her part.
What about new housing?
The new housing market is going through a “crisis” even greater than in the old sector, agree the experts interviewed by franceinfo. In addition to the decline in buyers’ purchasing power, developers are faced with “to the significant increase in construction costs”, analyzes economist Pierre Madec.
Supply disruptions during the health crisis, then the war in Ukraine, contributed to inflating the prices of raw materials. At the same time, the entry into force at the start of 2022 of new environmental standards, which require buildings to be better insulated, has generated an additional cost of 7 to 8% for builders, according to the French Building Federation. The latter also deplores building permits that are difficult to obtain from town halls.
In one year, around 375,100 housing units were authorized for construction, or around 26% less than during the previous twelve months, according to statistics from the Ministry of Ecological Transition published at the end of November. Reservations for new homes in the third quarter of 2023 fell by 30% compared to the same period the previous year, according to the Federation of Real Estate Developers.
Should a purchasing project be postponed?
Far from the months which followed the health crisis, marked by the desire to move post-confinement and attractive rates, the real estate market is now in a form of“wait and see”. Transactions are mainly carried out by households in “forced mobility”explains Pierre Madec, forced to sell or buy following a professional transfer or separation for example. “PFor the rest, buyers prefer to postpone their project while waiting to see if rates will fall and if property prices will really adjust.continues the economist.
However, the specialists interviewed do not necessarily advise giving up buying during this period. In a market with fewer buyers, “solvent buyers” have the weapons to negotiate and “lower the price to sellers who are still too high”points out Thomas Lefebvre.
“Four years ago, sellers ruled the market. Now, it is solvent buyers who hold the cards.”
Thomas Lefebvre, scientific director of the site MeilleursAgents.com
at franceinfo
For his part, Sévérine Amate advises also examining housing offers considered as energy sieves. “A poor energy performance diagnosis (F or G) results in a discount of 5% to 14% of the price of the property”, she recalls. An investment which can prove interesting provided that you carefully estimate the cost of the work and take into account renovation aid.
Moreover, “even if you buy right now with a rate of 4%, you can always renegotiate your credit when the rates drop”, recalls Thomas Lefebvre. In summary, “if there is no point in jumping into the market, being on standby and continuing to move forward with your real estate project is not necessarily a bad idea”he defends.
And is the rental market better?
No, the stock of rental property offers has fallen by 18% on average since January 2022, with an even more marked decline of 23% in large cities, according to a site survey. SeLoger.com published in September. The sector is bearing the brunt of the tightening of access to property. “Households that have a first-time buyer profile, rather young professionals, are forced to remain in rental because the acquisition gate is blocked for them”notes Séverine Amate.
At the same time, economist Pierre Madec also points to the rise of furnished tourist accommodation, considered more attractive by owners than long-term rental investment. At the end of 2021, there were more than 800,000 seasonal rentals, or 20% more over one year. A craze which is partly explained by advantageous taxation, since these properties benefit from a flat-rate reduction of 71%, compared to 50% for classic furnished properties. Finally, the ban on renting the most energy-intensive housing has also contributed to drying up the supply. Some owners prefer to sell their energy sieve rather than undertake the necessary renovation work.
As a result of this shortage, rents are up more than 3% year-on-year in the ten largest cities, according to SeLoger.com. The scarcity of supply, particularly small spaces, and the increase in rents “particularly penalizes students”, underlines Séverine Amate. The latter find themselves in direct competition with the files of young professionals.
Can we hope for improvement?
On the credit side, lowering rates is not on the agenda. “But if it seems that we have passed the peak of inflation in Europe, it should remain beyond the 2% objective in 2024explains Thomas Lefebvre. There is no evidence to suggest that the European Central Bank will change its monetary policy.” Under these conditions, credit rates should therefore stabilize “around 4 or 4.5%”. “If we are to believe the forecasts of a return to normal in inflation, we should not expect a rate cut before 2025”he decides.
The decline in prices could accelerate next year. “The number of properties for sale is accumulating on the market and owners forced to sell will have to concede price reductions to adjust to the new financing conditions of the French”, says Thomas Lefebvre. However, one should not expect a “collapse” prices, warns Séverine Amate. The site MeilleursAgents.com anticipates a drop in prices of around 4% in 2024.
“Without public support, it is not certain that the market will generate very positive developments on its own.”
Pierre Madec, economist
at franceinfo
The executive’s announcements in June, following the National Refoundation Council on housing, did not convince professionals in the sector. In particular, the limitation of the zero-rate loan to purchases of new apartments in tense areas or an old home with work in a non-stressed area. However, the government has since conceded an expansion of the beneficiary households and an increase in the amount borrowable within the framework of this aid system for the first real estate acquisition. In mid-November, Elisabeth Borne also made announcements to support the construction of housing. Finally, the Ministry of the Economy and the Bank of France announced relaxations of the rules governing real estate credit. Simple “technical adjustments”according to the governor of the Bank of France, who for example do not return to the maximum debt threshold set at 35% of income.
Can you give me a summary?
Driven by inflation, the European Central Bank has increased the rates at which it lends money to retail banks. If real estate credit has long been very affordable, thus encouraging purchase, borrowing rates have increased in 2023 to reach around 4%. Consequence of this policy: the capacity of households to borrow has been reduced. In the opinion of the experts interviewed by franceinfo, the market is now in a form of wait-and-see attitude until banks lend money more easily or until prices fall. In the meantime, the rental market is also blocked, because potential first-time buyers can no longer buy.
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