ARTICLE UPDATED END OF OCTOBER 2023:
The average real estate price in Paris has clearly fallen below the symbolic bar of €10,000 per m²
Prices fell by 0.4% in September 2023 over one month, reaching €9,850 per square meter on average. A national forecast anticipates a drop of 4% to 5% in prices over the next 12 months on average, as well as a drop in transaction volume of 10 to 20%. Buyers are increasingly rare and the volume of transactions continues to decline (1.2 million in 2021 compared to less than 1 million forecast for 2023), a drop of around 20% at the national level. In Paris, we expect approximately a 20 to 30% drop in the volume of transactions according to notaries and the FNAIM.
Inventories are rising: they exceed 2018 levels. Sellers are generally reluctant to lower prices, which has the effect of extending sales periods; this accentuation of the slowdown in the start of the school year is significant. It indicates that the market is on a lasting downward slope.
A growing volume of offers:
From January to August 2023, the volume of ads on the SeLoger site increased by an average of 42%. Some examples: Lille + 86%; Paris + 44%; Nice + 35%…. The offer is increasing and sales times are lengthening. This creates natural downward pressure on prices. Sellers determined to sell will have to readjust their expectations by lowering the price so that it corresponds to the new market reality at the end of 2023.
What to expect for 2024: Rising interest rates and falling credit production are starting to have a serious impact on the French and Parisian real estate market. The transaction volume is expected to be 890,000 in 2023, which represents a 20% drop compared to 2022. A national level 0.4% drop in prices on average does not seem worrying but compared to the +6.2% recorded in France in 2022, we easily understand that the slowdown and cooling of the market are very real.
2023 assessment: The slowdown is widespread at the national level, Paris is particularly affected with a price drop of -7.6% since July 2020, unheard of for more than 20 years, even during the so-called “desktop” financial crisis. subprimes” of 2008.
2024: Interest rates will remain high in the medium term according to the European Central Bank and the Banque de France, the most "blocking" factor is the slow readjustment of prices on the sellers' side. This is what is sometimes called "real estate market inertia" which sometimes requires six months, even a year, to react to new economic realities. Homeowners often find it difficult to accept that the price of their property has fallen and that it is now much more difficult to sell. This reaction is understandable, and it takes time to adapt to new realities (interest rates, real estate prices, increasingly calm market, etc.)
ORIGINAL ARTICLE WRITTEN IN JULY : Prices have fallen by 4% to 6% over one year in Paris, unheard of since 2015, on the other hand we hear more and more about the bankruptcies of real estate agencies. The increase in mortgage rates had a negative effect on the volume (-14% of transactions over one year in Paris) and sales times (more than 3 months on average) as well as on prices (approximately - 6% over one year in Paris on average). Sellers needing to sell quickly are often forced to lower prices to adjust to what buyers are willing to pay. Other sellers are pulling their goods off the market until things calm down and prices stabilize or pick up again.
Economic situation and complicated social tensions: The risks of recession are still present but the situation seems to be tending towards stability in the medium/long term. The policies of the government and its authoritarian and very singular management of public finances, policy of whatever it costs during the Covid, tax cuts for the highest incomes as well as on companies have led "mechanically" to a " compression" of public finances has led to very unpopular reforms such as the pension reform that the government thinks should be "forced". This has created violent tensions in French society, for the moment it has little or no impact on the real estate market, unlike the increase in mortgage rates, the increase of which is a macro-tool. economy that aims to reduce inflation, itself a direct consequence of the intensive use of "money printing" during the pandemic. In June 2023, according to Meilleursagents, the average price in Paris was €10,080/m², according to Century21 it would already be below €10,000/m².
If things continue in the same direction, prices in Paris will remain, for a while, below the 10,000 €/m² mark on average. Prices may continue to fall if interest rates on mortgages continue to rise (5% rate expected for the end of 2023) as this will have a reducing effect on the number of potential buyers present on the market. The real estate market in Paris is experiencing a simple price adjustment due to the inflationary situation unfavorable to real estate loans, but at this stage we certainly cannot speak of a "real estate crisis". The Parisian real estate market remains strong and resilient, in part thanks to the international buyers on which our agency has specialized for more than 5 years.
Outlook: Over the last 2 to 3 months we have observed the beginning of a "plateau" on the value curve of Parisian apartments on which we are led, by our activity as an international Parisian real estate agency, to give an opinion of value, consequently we can expect some "price stabilization" or at least an increasingly slow downward adjustment. Inflation seems to be stabilizing around 6%, we can deduce that the situation is improving relatively in the sense that the fall is much slower and we can see a certain stabilization of the situation over the last quarter. Some even speak of a reversal of the dynamics of real estate prices in Paris (a return to price growth) from the start of the school year, provided that buyers are there and that the market resumes its usual and natural dynamism. If prices stabilize, wait-and-see buyers seeing price stabilization could decide to take action quickly in order to carry out their real estate purchase project. This attenuation of the fall in prices is probably linked to the stabilization of inflation around 6%.
Another scenario would be an increasingly significant partial market blockage: At the national level the volume of transactions fell by 15% in one year and concerning prices they fell by 1.7% for apartments and increased by + 0.9% for houses over this same period, on average. In Paris, the average selling time has exceeded 3 months, it takes longer to sell a property in Paris than anywhere else in Ile-de-France, the average purchasing power in Paris is 56m² Regarding mortgages , in addition to the increase in interest rates and therefore the cost of borrowing, the contribution requested has also increased by around 60% in one year, quite simply unheard of. The average mortgage in France is €257,000, the personal contribution required for such a loan is currently around €90,000. For example, in 93 in Seine Saint-Denis, the surface area of goods purchased has fallen by 9m² over one year, on average. Some of the buyers have mechanically disappeared because of the growing difficulty in obtaining mortgages, this mechanism is itself a consequence of the sharp increase in inflation which has forced central banks to increase key rates (by interest) on loans (in other words the cost of money), they did this in order to fight inflation because raising interest rates is about the only known effective remedy against inflation. On the other hand, these monetary and financial policies have had very harsh consequences on the dynamics of the real estate market, both directly and indirectly, but the Parisian real estate market is known for its resilience, it is coping well with the turbulence, especially if we observe its evolution on the long term.
Negotiation margins have increased, some offers are made at 10% or 20% below the asking price, we even hear about offers at 30% below the asking price but this was immediately refused by the sellers. Buyers as they have the advantage are increasingly trying to get significant price reductions. Negotiation margins have increased a little but the wait-and-see attitude of buyers and sellers combined has a flabbergasted effect in the face of market developments and sliding prices, these elements contribute to making the market very sluggish. More and more players in the real estate market agree that buyers have the advantage and that they will keep it for the long term Interest rates on the loan are expected to reach 5 % at the end of 2023, which, a priori, announces even more complications for obtaining mortgages.
In 2022 the French have lost around 10% of their borrowing capacity, in 2023 the estimates are currently around 20% drop in the borrowing capacity of the French. Cumulated over 2 years, this represents a drop of around 30% in the borrowing capacity of the French, which has simply disappeared. Some sellers find it difficult to accept the price reductions that have caused a new reality in the real estate market, which is adjusting almost mechanically to the general economic situation.
Written for you by Sylvain Talvan, July 13, 2023.
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