The increase in rates has excluded many households from homeownership. The market should return to the fundamentals of balancing supply and demand. Prices fall by -5% to -6% on average in Paris, with sometimes strong differences between districts. At the national level prices have fallen by 1% on average, but for example in Nice prices have increased by +3%. All this over the last 12 months.
Transactions in 2023 are approximately 875,000 sales, which represents a drop of more than 25% in the volume of transactions since 2021, the year when there were more than 1.2 million transactions in France. According to FNAIM, this is the biggest deceleration in sales volumes in more than 50 years; some speak of a “shock” regarding the drop in the number of transactions. The markets that remain dynamic are those in which buyers are the least dependent on loans (domestic and international buyers paying cash).
As a reminder, borrowing rates in 1982 were around 18% in France, which did not prevent prices from rising by +130% in the second half of the 1980s. During the real estate crisis of the early 1990s , sellers took almost 3 years between 1991 and 1994 to agree to readjust their selling prices to the new market realities, naturally between 1991 and 1994 the volume of transactions had decreased significantly, the market resumed its natural dynamic after the sellers have agreed to adjust prices.
In 2024, sales volumes should continue to decline but less abruptly, around 750,000 transactions are expected for the year 2024, according to FNAIM, depending on the location and the type of property, prices will have to fall by 5% to 15% so that the transaction volume returns to its normal level of around 1 million transactions per year. This by balancing supply with available demand and above all with the financial capacities of potential buyers (significantly reduced by rising interest rates).
End of rising rates: The ECB is expected to lower key rates in 2024 in order to combat the recession; a drop or at least a stabilization of mortgage rates is anticipated in this context. This stabilization or fall in short and medium term rates should naturally have a positive impact on the volume of sales as well as the fall in sales prices, all of these elements being very linked.
2024 / 2025: A turning point for the real estate market?
The market could see a turning point between mid-2024 and early 2025. Rates fell across all banks towards the end of January, which hadn't happened in about 2 years. This is a favorable indicator for the real estate market outlook. This market has historically experienced significant inertia, changes in various economic and economic parameters take at least a few months to be "digested" and then reflected in the realities of the real estate market (sometimes this can take several years as during the crisis of the 1990s )
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2024: Interesting year for buyers
On the one hand, prices in Paris have not fallen in this way for more than 15 years. Deals on rare goods are much more accessible than before, at lower or at least somewhat negotiable prices, which was not the case a few years ago when an interested buyer had to make an offer quickly on some types of goods otherwise there was a risk of the property being sold to another buyer (sometimes within a few days). The market is now less tense than usual and offers that were almost impossible to find before are appearing on the market. Buyers who pay cash now have a certain form of priority in the eyes of sellers, a simple consequence of the fact that if they make an offer then there is no risk of refusal of a real estate loan by the bank, which has prevented certain transactions. to achieve these last 2 years. In this context, buyers without the need for a loan are very reassuring for sellers, which also gives them, in certain cases, weight in the negotiation. It is a very good time to buy if you do not need to take out a loan from a bank, the negotiation margins are greater, in this situation 5% sometimes even 10% negotiation has become common , depending on the goods and locations. For buyers without the need for financing with a long-term vision and project, this is probably the most favorable time to invest in Parisian real estate for more than 15 years. Indeed, the Parisian real estate market is an important global, international and dynamic market that always ends up recovering. Historically, a long-term investment proves to be judicious and solid (in our July 2023 article and a little further down in this article you can find a graph of the evolution of Parisian real estate prices since the 1960s)
Below: Real estate in Europe: a glimmer of hope for 2024?
Rare opportunities:
An enlightened investor will understand that this context, with the recent start of a drop in borrowing rates, makes it possible to find rare and highly coveted goods which are normally very difficult to find and which sometimes sold within a few days. In addition to the slightly lower prices, the greater negotiation margins make it possible to make interesting deals for those who can pay cash, we can obtain rare goods at more attractive prices than before. This market presents rare opportunities in which buyers now have much greater weight than before, particularly in terms of negotiating margin.
The real estate crisis of the 1990s compared to that of 2023:
In the 1990s borrowing rates were around 10%, prices fell in the same decade by around -40%, the worst real estate crisis in Paris since the 1930s. During the second half of the 1980s the Real estate prices in Paris had increased by +130%. Before prices give way, volumes drop (-35% in 1990 and -23% in 2023). The economic and monetary contexts are very different, the euro protects well against speculative attacks for example. Borrowing rates are far from the peaks of the 1990s at 10% compared to 4% in 2024. During the crisis of the 1990s certain factors such as strong financialization played a role, the Gulf War, as well as institutional investors ( nicknamed the goofs) who invested massively in the 1980s, then sold massively in the early 1990s when prices started to drop, which initially had the effect of amplifying price growth, then secondly to amplify the brutality of the crisis.
We are very far from the context of the 1990s, so the term crisis is appropriate especially to talk about the volume of transactions, however prices are resisting. For the moment there is no question at all of a drop in prices comparable to that which took place in the 1990s. Prices have almost tripled in Paris over the last 15/20 years, we have experienced an abnormally euphoria which made us forget the crisis of the 1990s. It is not so much the level of borrowing rates as the brutality of the increase which impacted the real estate market.
Rates are expected to remain stable, even falling in 2024. The Olympic Games will perhaps have a positive effect on transaction volumes and prices, but the intensity and duration of this effect are difficult to anticipate. The average price in Paris has fallen below the symbolic bar of €10,000, energy-intensive housing is clearly the most impacted by the drop in prices. In 2024, transaction volumes could fall again but less rapidly than in 2023. At the beginning of January 2024, one in two banks will have falling borrowing rates, which has not happened for around 2 years. At the end of January 2024 all banks show falling rates.
Several positive indicators may suggest a stabilization of the real estate market in 2024/2025 provided that things continue to evolve in the direction of falling borrowing rates.
Contact us to discuss your real estate sale or purchase project in Paris or France today to benefit from the skills of a multilingual digital agency which will allow you, on the one hand, to have easy access to the market French and Parisian, and on the other hand if you are a seller we will allow you to reach a large international clientele. Below you will find documents which will allow you to delve deeper into the subject of the evolution of real estate prices in Pris and in France.
If you liked this article, please “like” it and share it! Written for you by Talvan’s International real estate agency on FEB 2, 2024
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SOURCES
Meilleurs agents - espace presse : www.meilleursagents.com
Notaires : www.immobilier.notaires.fr
PWC : www.pwc.com
FANIM (Fédération nationale des agents immobiliers) : www.fnaim.fr