In real estate - there is no crash yet, but a definite crisis

Real Estate Economics After several years of strong growth, the real estate market has seen a sharp decline in transactions due to rising lending rates and the beginning of falling prices.

The real estate agent advised them "not to persevere and to lower the price". The couple, who live in the 19th arrondissement of Paris, followed this advice without objection: their four-bedroom apartment, which was for sale in April for 695,000 euros, is now worth 640,000 euros. Despite this "effort", no buyer was found. In the meantime, the family bought another, more expensive home by taking out a real estate loan. "We don't have money problems, but we significantly reduced the selling price. Now we sell at 7,600 euros per square meter, and this is already having a negative impact on our budget," explains Nathalie (name changed). In addition, they pay utilities and property tax for both apartments. This causes a lot of stress.

After a period of overheating real estate market caused by historically low interest rates and the frenzy of buying following the COVID-19 pandemic, there has been a period of stagnation. From a peak of more than 1.2 million transactions recorded in August 2021, the volume of transactions in the last one year (August 2020 to August 2021) has declined sharply. "By the end of 2023, we should register between 900,000 and 950,000 transactions per year," predicts Frederic Violo, a notary from Caen responsible for national real estate statistics at the Superior Council of Notaries. A reduction of 300,000 transactions annually would shrink the market by a quarter. The tipping point was the end of the "free" money period. The historic decline in interest rates since the mid-2010s has led to massive customer solvency and significant price increases. In order to contain the inflation that has been seen in Europe and globally since the war in Ukraine began in late February 2022, monetary institutions raised interest rates sharply. Banks have passed these increases on to customers. The average mortgage interest rate nearly quadrupled, from just over 1% in December 2021 to 3.8% in August 2023. This has significantly reduced the purchasing power of families who have abandoned the real estate project en masse, as evidenced by a 45% decline in the annual volume of mortgages to individuals.

"Buyers have become very demanding about everything." With the number of buyers falling, sellers have lost the initiative. "When we bought our apartment in 2013, a small two-bedroom apartment in the 10th arrondissement of Paris, we had to rush to get it. The main thing was that it had to be 80% suitable for us.