Real estate: Prices continue to fall according to FNAIM

A real recovery, not impossible in 2025, seems out of the question in the coming months.

The few weak positive signals (perceived increase in the number of visits to housing and traffic to advertising sites as a result of a slight decrease in credit rates and prices) are perhaps partly cyclical, springs are usually more favorable than winters for the housing market.

At this stage, no market indicator has yet turned green: the number of compromises and sales, which continue to decline, as well as loan production, prices, which have not yet fallen significantly, and loan rates, which remain at a higher level than a year ago.

The recent continued decline in sales (835,000 sales in the 12 months to the end of February) supports the forecast of an 8% fall in sales in 2024 to 800,000 transactions, with prices continuing to fall.

Slow growth and the process of disinflation

Banque de France forecasts GDP growth of +0.8% in 2024, the same level as in 2023 (+0.9%), before a gradual recovery in 2025 (+1.5%) and 2026 (+ 1.7%). Conversely, inflation fell to 2.4% in April 2024. Inflation has been steadily falling since 2023, when it exceeded 7%, and is now approaching the central bank’s target.

Source: Eurostat

Inflation now appears to be under control after an episode of exceptional growth. But most of the decline is probably behind us.

Credit rates should stabilize in the coming months after exceeding the maximum

Credit production divided by three in two years. In March 2024, it is the lowest since 2014, suffering from a drop in sales of old properties and a drop in new properties.

Home loan rates have fallen slightly since the start of the year, but this is far from offsetting their quadrupling over the previous two years.

Source: Bank of France

They fell back to 3.9% in March 2024 according to the CSA/Crédit Logement Observatory following a fall in government bond rates (10-year OAT). These should stabilize in the 3rd quarter of 2024. The usurious rate is now much less restrictive for banks, which have regained freedom and flexibility in lending and restored their margins on real estate loans. The credit tap is opening again, but the flow of demand is weak.

Source: Bank of France

Rising rates have caused first-time buyers to lose purchasing power and disincentivized households who already own a home to move at the risk of their loan rate rising significantly compared to their current loan. The number of “comfortable” sales that are not dictated by life’s ups and downs (birth, divorce, death, etc.) is decreasing.

A sharp drop in sales

The decline in apartment sales, which began in September 2021, has accelerated since 2023: 835,000 sales were made in the 12 months to the end of February 2024 (-23% in one year). Therefore, the number of transactions drops significantly below the “pre-COVID” level and goes back 7 years.

In 2023, this was the largest one-year decline in sales (-22%) in the last 50 years. A big shock for the real estate market. FNAIM forecasts for 2024 remain unchanged at 800,000 sales, down 8%. This decrease in sales also applies to all territories.

Source: IGEDD

Note that sales in the new market have fallen for 18 months and are the lowest since 1995. The problem seems to be deeper in the new market (constrained mainly by the cost of labor and materials) than in the old market.

A significant drop in prices in dense areas

As is customary at the start of a bear cycle, a decline in volumes is followed by a decline in prices that has materialized since the start of 2023. After a pre- and post-covid surge (with the exception of Paris), prices have turned around and are now showing a slight but sustained decline.

The sharp increase in mortgage rates from the start of 2022 makes this decline in prices necessary (so far on a gentle slope) to preserve the purchasing power of buyers. We are seeing a drop in demand.

Source: FNAIM

This decrease affects almost the entire territory. Even tourist areas (sea and ski resorts) have seen stagnation or even a drop in prices in recent months. The most affected is Paris (-4.8% in one year) and the 10 largest provincial cities (-2.6%).

Big cities are experiencing a significant drop in prices: Lyon (-7.1%), Nantes (-7.8%), Bordeaux (-5.0%), with the exception of Nice, which is still resisting (+3.9%). Paris suburbs are also the area where prices have risen for at least 10 years. Generally speaking, the market declines more where prices are highest because there is greater sensitivity of buyers to credit rates. Big cities, where prices and credit utilization are high, suffer more than elsewhere in France from the loss of the ability of households to buy real estate.

Source: FNAIM

Most departments are experiencing a drop in prices, but this is not the case for Corsica or the coast in the PACA region, specifically.

In general, it can be said that the cycle of falling prices has begun. At this stage, the decline in prices is still relatively moderate and is far from compensating for the rise in rates, even taking into account the increase in income. Buyers’ purchasing power will recover in 2024, driven by rising incomes, falling house prices and even a modest drop in rates, but this will undoubtedly be insufficient for a real market recovery in the short term.

Source: FNAIM

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