Since the start of 2023, real estate prices have fallen in France. What are the reasons and will this decline last? Answers with Françoise Calabro, director of the YourHostHelper agency in Grenoble.
You have most certainly heard of it, real estate prices are collapsing in France over the months of January and February 2023, losing up to 2% in certain cities. A trend already initiated at the end of 2022 but which is accelerating in 2023, worrying many market specialists. Françoise Calabro, director of the YourHostHelper concierge service in Grenoble, puts forward a few points: “The economic crisis is hitting everyone hard. The pandemic, the war in Ukraine, inflation, times are tough. Real estate is inevitably impacted. Purchasing power is falling and interest rates are rising”.
Real estate prices are falling all over France
According to Meilleurs Agents, which published a study on the start of 2023, Paris is one of the many cities to have experienced a drop in prices at the start of 2023, with a drop of around 0,4%. It is also the whole of the top 10 French cities that is experiencing a decline in prices. Lyon and Nantes are the most affected cities (2% in just two months), followed by Lille (0,7%), Montpellier (0,6%) and Marseille (0,4%). Bordeaux is the only city to maintain a stable price, and only one city is experiencing a price increase: Nice (0,7%).
Rural areas, which according to Meilleurs Agents “have played the role of market locomotives since the start of the coronavirus epidemic”, are also experiencing a significant drop (-0,4%). The trend is therefore general, and concerns a large part of the territory, from large cities to the countryside, passing through medium-sized municipalities and peri-urban areas. The entire French market is affected by the housing crisis.
Prices are likely to continue to fall in the coming months, as Françoise Calabro of the AirBNB agency in Grenoble describes: "The fall in prices is mainly linked to the increase in interest rates, which influences the price of real estate because borrowers find themselves with a reduced debt capacity". As a result, the number of transactions is down across the country, with a drop of almost 6%. For Françoise Calabro, we must not see only the negative: "the fall in prices in the face of the increase in interest rates can make it possible to unblock the real estate market and revive it".
Acquiring real estate: mission impossible?
The main factor behind the fall in property prices in France is the rise in interest rates. This increase pulls prices down and forces buyers to take on more debt: from 1% in January 2022, the average rate over a repayment period of 20 years is now 3%. A mortgage at 200 euros would cost €000 in interest today, compared to €66 at the end of 207. Borrowing capacity has reduced by almost 20%, as has purchasing power. which also lost 741%. The Banque de France estimates that borrowers lost an area of 2021 square meters between December 15 and January 15.
"No one had anticipated a drop in market prices just a few weeks ago," recalls Françoise Calabro, director ofconcierge agency in Grenoble under the YourHostHelper brand. Since then, the trend has been reviewed and some see this as good news because it would regulate the market. According to experts in the sector, prices would have to reach a record drop of 10% for the market to regulate itself and become accessible again to the most modest households.
Inflation also contributes to the increase in interest rates and plunges more and more French people into crisis every day. Still according to the study of Best Rates, only 56% of the files received are financeable in March 2023. They were 70% in 2021. The banks are indeed very difficult and obtaining a mortgage is almost impossible without having solid foundations. The most optimistic experts do not envisage an easing on the rate front before the second half of 2024. We will therefore have to be patient.
What are the reasons for the increase in real estate prices?
If the real estate market has been undergoing a major crisis for several months, it is not only because of the increase in interest rates, which themselves stem from the global crisis. The OAT 10, or the borrowing rate offered to the State, which then redistributes the funds to the Banque de France, has undergone a spectacular increase over the past year. To be able to make a profit on the amount borrowed by individuals and investors who take out a mortgage, banks are forced to revise their interest rates.
The current situation, against a backdrop of geopolitical tensions with the war in Ukraine, but also the energy crisis, inflation and the increase in the cost of living are not helping matters, as noted by Françoise Calabro, director of YourHostHelper agency in Grenoble: “it's difficult for everyone to project themselves. Banks find it difficult to trust, and even applicants find it difficult because the number of mortgage applications is also down.” Indeed, whether new or old, projects are becoming increasingly rare. We no longer dare to borrow for fear of being overwhelmed by debt.
Rising interest rates and strict access conditions are having devastating effects on the mortgage market. The number of loans granted has been in free fall since the beginning of 2022, which affects the real estate market as a whole. The general economic situation does not seem to improve in 2023, which could worsen the situation. Real estate market players will therefore have to be creative in finding solutions to revive activity. An improvement is therefore not to be expected in the immediate future.
A collapse of the real estate market to be expected?
Many economists are sounding the alarm and are already announcing a downturn in the real estate market. Some speak of a real estate crash worthy of the 90s with a drop in prices of 30% to 40%. Conversely, others think that the situation is different, according to them the market being driven by user purchases and demand stimulated by the shortage of goods. “What is obvious is that the market will not come out completely unscathed, analyzes Françoise Calabro of the YourHostHelper agency in Grenoble. This crisis is likely to last a few more years, with consequences that will not be felt immediately but in the long term”.
For others, it is good to remember that the market is experiencing its first decline after more than 25 years of increases. But ultimately, can this solve the housing problem in France? “It's complicated to project yourself, thinks Françoise Calabro. If selling prices change, rents do not fall, which is complicated for tenants, especially the youngest. We know that it is not easy to go from tenant to owner. But even a fall in prices, when rates rise, should not radically modify the difficulty for prospective buyers. To see a real change in real estate prices, the whole French economy would have to collapse, which no one wants, because the situation would be even more catastrophic than it is now. .
