The The housing market in France After growing in the past five years, growth is showing signs of slowing interest rates and tightening credit standards that are reducing sales demand.
Second-hand price growth slowed in the second quarter, according to data from the National Institute of Statistics and Economic Studies.
What is the outlook for the housing market in France? Is the market likely to crash in the future?
Read on to find out more.
What is the housing market downturn?
In real estate markets, prices rise and fall in cycles. Bubbles form when average asset prices rise above their fundamental value, which can cool the market or, if prices fall quickly, cause the bubble to burst.
Real estate market bubbles can be caused by excess demand encouraged by government policies such as low interest rates or excessive credit. As economic conditions change and mortgages become unaffordable, homeowners may be forced to sell, oversupplying the market and reducing demand.
The French real estate market experienced a decade-long boom from 1997 to the global real estate crash of 2007, during which prices rose 150%. The French housing bubble ended in 2008 when the market experienced a slight drop in prices. Home prices fell at an average annual rate of 1.7% from 2012 to 2015, and then began to rise in 2016.
Mortgage loans in France are mainly based on fixed-rate financing, which contributes to market stability and reduces the likelihood of a decline in real estate prices in France. The market is less susceptible to price spikes and major crashes than in other countries, where changing mortgage rates cause instability.
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Will French real estate prices fall?
As in other countries, in France, real estate market prices have skyrocketed during the Covid-19 pandemic. The publication of the price index for new and old homes by the French National Institute of Statistics and Economy (Insee) rose from 112.7 in the fourth quarter of 2019 to 119.30 in the fourth quarter of 2020, its fastest growth since 2010, and continued to do so. to 127.5 in the fourth quarter of 2021 and 130.8 in the second quarter. general.
What is the reason for the slowdown in the growth of real estate prices in France?
Insee reported that prices in France’s housing market continued to rise in the second quarter, up 1.5% compared to the first quarter and up 1.4%. Information. New home prices increased 3.2% after rising 0.1% in the first quarter, while existing home prices increased 1.3% after rising +1.7% in the previous quarter.
On an annual basis, prices increased by 6.7% from the second quarter of 2021, after an increase of 7% year-on-year in the previous quarter. Existing home prices rose 6.8% year over year, while new home prices rose 6.3%.
High-end home prices in France grew about 6% in 2021, and home sales increased 31% above the 10-year average, according to a UK estate agent. Frankish Night. According to the analysis: “The pandemic has seen French buyers reassess their housing needs and work practices, and in many cases relocating, upgrading or acquiring a long-awaited second home.
“In 2021, when the borders reopened, they were joined by foreign buyers tired of the epidemic, for whom French art de vivre resonated even stronger.”
The company noted the impact of higher interest rates on global foreign exchange markets, foreign buyers who deal in hard currencies against the Euro (EUR) are more likely to buy into the French real estate market at lower prices. The euro fell against the US dollar. This year, French real estate has been particularly attractive to buyers from the United States and countries whose currencies are pegged to the US dollar.
“US buyers are currently experiencing a 16% decline in prices from last year due to currency fluctuations, which is why US searches for French properties on the Knight Frank website increased 37% year-on-year in May 2022.” Knight Frank said in July. .
But real estate prices are slowly rising 3% in the first half of 2022. French Real Estate News Knight Frank France in October, along with Canada, New Zealand and that’s for us, which saw its biggest drop in sales in the previous 12 months due to higher mortgage rates in Local market. French stock markets are down 13% for the year and 7.5% over the previous three months.
Areas popular for second homes and vacation rentals are expected to be affected more than cities by the slowdown in the global housing market, as was the case in 2008. Urban real estate markets are expected to show greater resilience to supply constraints and strong labor markets. Sales in Paris, London and New York have been holding up so far, with sales in Paris up 23.6% over the past 12 months and 19.1% over the previous three months.
High-end real estate prices in Paris are lower per square meter than in many capitals, making it attractive to foreign buyers. Private equity firms are increasing their exposure to the Paris residential real estate market as a store of value and a hedge against global economic uncertainty.
Panorama of the French real estate market
The business should be healthy but still weak in 2022, with some slowdown in sales seen in the first half. The Russian-Ukrainian conflict has added to the uncertainty and will affect buyer sentiment amid a strong rally. “Inflammation and difficult financial conditions,” Knight Frank said at the start of the year.
At the time of writing (November 23), economic data provider Business economics The French housing index is expected to decline from 130.78 in the third quarter to 130 by the end of the year but rebound to 136 in 2023, according to its economic models.
French banking group BBCE “significant contraction in residential real estate transactions, with a 5% decline in transactions in the old housing sector in 2022 and a 9% decrease in 2023, exacerbated by a decline in new construction in 2023 due to supply disruptions, increasing costs and increasing Difficulties in obtaining urban building permits imposed by the RE2020 regulations.
“Prices, which are traditionally considered more resistant to changes than volumes, should cool in 2022 (+4%), but they will continue to benefit from the ‘catch-up phenomenon’ affecting construction speed and medium-sized roofs in 2021 beyond the 2010/2020 decade. This type of real estate has stagnated the size of towns and single-family homes in the provinces.
The BPCE predicts that prices could fall next year: “…the combined effect of interest rates, reduced household purchasing power, and implementation of energy regulations will result in a 3% drop in average prices in 2023.”
In fact, rising interest rates raise the question of the price level beyond changes in trend, and generally protect housing loans.
Ultimately, whether there is a further decline in real estate prices in France will depend on the extent of the economic slowdown and the impact of inflation, interest rates and the exchange rate on buyers. As BPCE noted in July: “The middle class increasingly shares the pessimistic view of the more modest people, who think twice before taking the plunge or deciding to abandon their real estate venture for good.
Inflationary shocks, rising interest rates and the implementation of energy regulations in France “will lead to a permanent shift in the market.”
If you are viewing French real estate price forecasts to help inform your investment or trading decisions, we recommend that you review the latest market trends, news, technical and fundamental analysis, and expert opinions before making an investment decision. Remember that past performance does not guarantee future returns. Never invest money that you cannot afford to lose.
Frequently Asked Questions
Is there a housing crisis in France?
France is not immune to a global shortage of affordable housing, long after real estate prices have been on the rise.
Is there a housing bubble in France?
France sees record growth in real estate transactions in 2021 According to Knight Frank, residential transactions are 31% more than the 10-year average, but the rate of price increases will start to slow in 2022.
Is it the right time to buy a property in France?
As of this writing, many analysts have suggested that real estate prices in France are likely to decline in 2023 as interest rates and inflation adjust to demand. However, you should remember that analyst forecasts may be wrong. Always do your research.
We recommend that you review the latest market trends, news, technical and fundamental analysis, and expert opinions before making an investment decision. Remember that past performance does not guarantee future returns. Never invest money that you cannot afford to lose.