No crash, but a trend reversal - into a buyers' market
After years of euphoria, at this moment towards the end of 2023, real estate in France is no longer buoyant – rather things are cooling off or even sharply decelerating in some places. The post-Covid buying frenzy is over. According to Meilleurs Agents, a real estate evaluation platform, as of October 25, the number of transactions has fallen by 20% year-on-year. Forecasts call for fewer than 900,000 transactions by the end of the year – in contrast to almost at 1,200,000 in 2021.
This is largely due to the end of low interest rates. Mortgage rates have risen nearly fourfold, from 1% in December 2021 to 3.8% in August 2023. There are therefore fewer and fewer potential buyers in the market – at least those (60% of them) who need financing. First-time buyers are having a really hard time. This has reduced household buying power and has seen the number of loans offered to individuals fall by 45% year-on-year. The stock of properties on the market accumulates, and (increasingly) sellers forced to lower their prices if they want to offload their property.
The trend has started. House prices are falling in half of the cities in France. Century 21, an estate agency network, estimates that prices had dropped by 2.5% on average in the first nine months of 2023 compared to 2022, and by 4.1% in the third quarter of the year. But regionalization means this is not the picture everywhere: whilst prices fell in Paris and Bordeaux by 5.4% and 13% respectively, they rose by 1.3% in Besançon, and by 10% in Marseille. New home reservations have dropped by 40% in one year, meaning that an entire ecosystem is “freezing up,” as with lower demand, developers halt projects. The number of building permits granted in September 2023 has dropped by 28.3% compared to the previous year. All in an inflationary context where material costs remain more expensive than before the crisis.
Buyers and investors think twice before completing a purchase. Breakeven is longer to reach for investors. All when property taxes are shooting up pretty much everywhere in the country, and ecological/energy requirements are tightening. Real estate professionals fear that because lending interest rates are still on the rise, the situation will not get better any time soon. This downward cycle, both in terms of sales volume and prices, is expected to continue in 2024 and even beyond.
This situation creates opportunities for cash buyers. At least 30% of purchases are made by people who don’t use financing, either because they have sold a property and are flush with cash, or because they are not in a position to borrow money in France – like most foreign buyers.
At this stage only owners who absolutely must sell are thought to be agreeing to a significant price reduction. But an increasing number of sellers are starting to listen when told that they should lower the expectations. The head of Century 21 said that “prices would need to fall by as much as 20% if we are to hope for a recovery in transactions by mid-2024.” Falling property prices may be seen as an opportunity for potential buyers, but it also raises concerns for sellers and investors. Declining trading volume could affect market liquidity , making it harder for sellers to find buyers. However anyway you frame it, we are now in a buyers’ market – albeit a bit slow moving until sellers come to terms with the market reality.
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