The scale of the drop in real estate prices - Financing for everyone

After several years of rising real estate prices, the market in France is starting to change. Due to the increase in interest rates, property prices have decreased by an average of 1% across France since the beginning of 2023. The decline is more noticeable in Paris and throughout the Île-de-France region. However, real estate prices are still at a high level... awaiting further declines?

Almost entirely a decrease in real estate prices in 2023. Since the beginning of 2023, property prices have been falling across France. The average decline is about 1% for all types of housing. It is slightly higher for apartments (-1.1%) than for houses (-0.9%). As usual, these averages hide a lot of geographical differences. For instance, real estate prices in the Île-de-France region dropped by 3.3% in the first two quarters of 2023. The decline is more noticeable for apartments (-3.4%) than for houses (-3.1%). Regarding apartments, the price drop is more significant in the departments of Seine-Saint-Denis (-3.9%), Hauts-de-Seine and Val-de-Marne (-3.7%), and Paris (-3.6%). The Auvergne-Rhône-Alpes and Île-de-France regions are also experiencing a decrease in property prices. Prices have fallen by 0.9% and 1.7% respectively since the beginning of 2023. Unlike the rest of France, house prices in these two regions are decreasing more than apartment prices. It is worth noting that apartment prices are falling more sharply in Lyon (-3.7%) compared to Paris.

The price index for old residential properties from notaries - INSEE. The data used in this article comes from INSEE. It provides price indices for old real estate calculated based on the notaries' database. These indices are calculated based on all transactions that actually took place during the quarter, and at a constant quality, thus the change in the index does not depend on the type and quality of the housing involved. However, the decline in real estate prices does not affect all of France. The Provence-Alpes-Côte d'Azur region is a notable exception. Since the beginning of 2023, property prices there have increased by 1.7%. This growth is due to an increase in apartment prices (+2.6%), while house prices have slightly decreased (-0.2%). A distinguishing feature compared to Paris and Lyon is that apartment prices in Marseille have increased by 1%.

The turnaround in the real estate market is primarily due to the tightening of monetary policy in the eurozone by the Eurosystem. More specifically, the increase in key interest rates set by the European Central Bank (ECB) leads to higher borrowing costs, reduces the "purchasing power" of potential homebuyers, and negatively impacts demand for real estate. In addition to falling prices, INSEE notes a decrease in the number of transactions. From July 2022 to June 2023, there were 1 million transactions, which is about 12% less than from July 2021 to June 2022 (1.14 million transactions). Many deals fail to go through due to the refusal to grant the requested mortgage loan to the buyer. The scale of the decline in real estate prices remains relatively moderate for now. In fact, despite the observed changes since the beginning of 2023, real estate prices remain high. This is not surprising, considering that the real estate market experienced record growth over the past decade, driven in part by low interest rates. For example, in Lyon, prices for older apartments have returned to the level of June 2020. However, they still exceed the 2013 level by almost 50%. The same situation is observed in Paris: prices for older apartments have returned to pre-Covid-19 pandemic levels, but still exceed the 2013 level by 22%.

Will the decline in real estate prices continue? Judging by the statistics presented above, it is clear that we are currently witnessing a turning point in the real estate market. Will it continue? Or, on the contrary, are the recent declines in real estate prices merely a pause before a new rise? Let’s be clear: it is impossible to answer this question with certainty. It is worth recalling many experts who predicted a market crash in Paris in 2004-2005, when the price per square meter was approaching 4000 euros. Since then, it has more than doubled... Considering all these cautions, it seems reasonable to assume that the decline in real estate prices will continue in the near future. Inflation, according to INSEE forecasts, is expected to remain above 4% by the end of 2023 in France. In turn, the ECB does not foresee a return of inflation to around 2% in the eurozone until 2025. This prolonged period of inflation should not prompt the ECB to lower interest rates in the near future. However, the current structure of interest rates complicates the possibility of growth in the real estate market, unless the anticipated slowdown in economic activity in Europe forces the ECB to change its current policy...

The data on which these statistics are based comes from notaries, meaning they reflect finalized transactions. However, there is about a three-month gap between setting the price and signing the sales contract. This leads to minimal changes, especially during periods of significant price drops or increases.