The real estate market crisis: rates, deals, new construction is in free fall, and that's bad news

Throughout the year, the real estate market is facing a new crisis due to difficulties in accessing loans and their rates for buyers. Over the year, sales at notaries have fallen by 17%. In Toulouse, in the field of new buildings, developers are talking about a 50% decrease, which looks like a free fall.

For several months, the real estate market has been facing a new crisis due to difficulties in accessing credit for buyers. Whereas transactions at notaries' offices skyrocketed during the two years of COVID, they have now fallen sharply. While real estate prices continued to rise, especially in the Haute Garonne, home sales collapsed, especially in new buildings, more than a year ago.

The Departmental Federation of Notaries of Ariège, Haute-Garonne, Tarn and Tarn-et-Garonne publishes depressing statistics on Monday, September 25. Sales in old housing fell by 10% for apartments and 17% for houses. In new construction, the decline is even greater, with condos having a much harder time finding a buyer. Notaries note a decrease of 23%. The drop in sales of land plots, demand for which is collapsing, is 29%. Thus, we observe a decline in the real estate market, especially in the sphere of new buildings.

The worsening performance is directly related to inflation, as many families have been depleted, and the sharp and rapid rise in interest rates. Average interest rates on loans are at 4% in September, up from barely 1% at the beginning of 2021. When incomes are equal, borrowers are being negatively impacted and losing purchasing power. As a result, purchase candidates are putting their projects on hold and sellers are struggling to find solvent buyers.

This situation contrasts with the previous period 2021-2022. After a period of restrictions, buyers rushed to buy houses "in the green" or at least with a garden or terrace. The introduction of almost universal remote working also had a stimulating effect. But this has now passed.

"This recession that we have seen so far is real everywhere, both in France and in the Haute Garonne", notes Henri Chesnelong, notary, representative of the departmental federation of notaries of Ariege, Haute Garonne, Tarn and Tarn-et-Garonne. He believes that this decline will intensify. "The sales volume is impressive, as the numbers are impressive, and above all, this may continue for some time, as we have seen in recent years an increase in volumes and an increase in prices. Now we are seeing a decline in volumes and then a decline in prices will follow, although not as sharp."

"If you look at the chart over a longer period of time, you can see that we are approaching transaction volume close to 2017-2018. Those years were exceptional.

Notary also notes that the expected explosion of sales of energy efficient homes in the market has not occurred. Construction companies are not in the best of moods. Comparing the first half of 2022 with 2023 in and around Toulouse, they see a 50% drop in sales in new buildings. "We are facing a decline in sales since 2020", explains Stéphane Aube, chairman of the federation of developers and builders in Toulouse. "We have had a 40% drop in sales in 2023 ... when you have fewer houses for sale, you sell fewer of them."

"This decrease is due to a decrease in the number of building permits issued starting in 2020," he continues. "Traditionally, during municipal elections, we see a decrease in permits issued. Usually this is offset in the city of Toulouse, but it is very difficult in the metropolitan area. Unfortunately, every candidate campaigns against urbanization and then delivers on their promises."

The second significant factor is the growth of interest rates. In a year and a half we have gone from a rate of 1% for 20 years to 4%. "Before, with €300,000 for 20 years, you paid a monthly payment of €1,400, but now with a €1,400 payment you can only borrow €225,000," argues the chairman of the Federation of Developers and Builders. The sharp and rapid rise in interest rates has significantly restricted access to new housing for buyers and investors. Added to this is the caution of banks, which are less inclined to grant loans for fear that customers will not be able to repay them.

Developers are hoping the Financial Security Administration will take this crisis into account and change its requirements. "The remaining life should be taken into account, not a percentage of income. Whether you earn €2,000 a month or €10,000, your loan payment should not exceed 35% of your income," explains Stéphane Aubé. "However, when you earn €2,000, 35% is €700 a month, and when you earn €10,000, it is €3,500. A person earning €10,000 could borrow €4,000 or €4,500. This excludes a portion of customers who could get a loan, but they face barriers."

Soaring interest rates over the past few months have literally derailed the real estate market. But another aspect also plays a role is the high and even rising prices. This factor also influences the decision of buyers to postpone their purchases.