Since the time we talk regarding it, it had to happen: real estate prices are falling. But be careful, they do not collapse.
According to the Banque de France, the average credit rate was 2.2% in January
Prices fell 0.1% in February and 0.2% since the start of the year. This is indicated by the MeilleursAgents and Les Echos indices. This is an average of course. For an apartment of 200,000 euros, that’s a discount of 400 euros. It’s not much, but it’s still a sign that the euphoria of recent years is over. In Paris and in the big cities, the decline was already perceptible in recent months, but it has spread to rural areas with drops of around 0.4%. It is the provincial towns, where it is good to live, which have recorded the most notable declines, such as Nantes, Lille or Lyon with drops which are close to or exceed 2%. So why are prices falling? The first culprit is the rise in interest rates. No more borrowing at very low interest rates which have boosted the real estate purchasing power of the French in recent years. According to the Banque de France, the average credit rate was 2.2% in January. Unheard of since February 2016. It even reaches 3% for 20 or 25-year loans. In one year, the cost of mortgage has almost doubled. At the same time, inflation woke up, eating away at the purchasing power of the French and their ability to borrow, while salaries did not follow. This mix of rising rates and inflation has driven many buyers away from the property market, with some being denied loans from banks.
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Finally, there is another phenomenon. The Covid crisis had pushed many French people to go to the countryside. Soaring energy prices put a stop to this movement, which benefited rural areas. We are a long way from the fall in prices recorded during the 2008 crisis. The credit market is not blocked, but inflationary pressures might keep interest rates under pressure. And therefore the rates at which banks lend. The Banque de France’s decision to raise the usury rate to 4%, that is to say the maximum rate at which banks can lend, might however give potential buyers some energy. Either way, the real estate market still needs to drop a bit for supply and demand to regain a balance. The next few weeks will be important as we approach the spring of real estate, the privileged period for transactions, with the return of sunny days. But one thing is certain, in the current context, it is the buyer who has regained bargaining power.
Pierrick Fay
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