2024-01-14 09:00:00
Explosion of interest rates and timid drop in prices: French real estate is going through a deep crisis. These fluctuations demonstrate mechanical transitions from one cycle to another, which explain why housing regularly goes through periods of recession.
In its structure, real estate is quite similar to economic cycles. A crisis is almost always followed by a recovery phase, which is the moment when you need to invest your money well if you want to invest.
Indeed, prices are low and the return on investment following a recession phase is quite good. A period of expansion begins, during which real estate is financed on credit, at a higher or lower cost depending on the rate level.
Once this growth phase has consolidated, supply becomes excessive and often lags behind demand. If the latter weakens, as the supply is still too strong, a mechanism of « normalisation » or even decline begins, leading to a recession.
The economic situation plays a major role in real estate fluctuations
These successive phases are influenced by different factors. In the case of real estate, the most important thing is the evolution of interest rates. Households and small businesses often finance real estate with credit.
Thus, the more rates increase, the more the repayment of real estate debts increases, and the slightest drop in income is accompanied by a reduction in sales.
The economic situation is also an essential factor: when the unemployment rate increases, repayment difficulties accumulate, which weighs on the banks which have lent.
The means to avoid real estate crises are in the hands of financial authorities
A question remains: is it possible to avoid these crises, or at least to mitigate them? Stabilization of the real estate market is a major issue for regulators.
Some countries have been more resilient than others to real estate crises. In France, the banks are rather well placed, because when a household or business applies for a mortgage loan, it must have a personal contribution.
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This constitutes a major advantage for banks and requires borrowers to make efforts to repay their credit. The means to curb real estate crises are therefore above all prudential.
Natacha Valla
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