Price drop, rate rise: Where does the French real estate market stand?

Less than a million sales in a year and decreasing prices

In a context of high inflation, with sharply rising interest rates (increasing from an average of 2.09% in October 2022 to 4.12% in October 2023 according to data from the 'Observatoire Crédit Logement'), the purchasing power of households for real estate has gradually diminished. This has been a phenomenon that's been ongoing since the end of 2021. Out of sync, too high, real estate prices have begun to decrease, with the number of transactions dramatically falling, between 3 to 8% over a year in Île-de-France and in the largest urban areas. The breaking point is near. The year 2023 should see the number of transactions dip below the one million mark.

It's a reality, the market is tight. Many households are stuck, unable to sell and realize their projects. Others, compelled to sell due to obligation (relocation, separation, etc.) are dealing with a lower selling price. This gap between supply and demand directly impacts prices and resistant homeowners might have to resign to lowering their expectations.

Prices trending downwards but local differentiation remains pronounced

If the decline in real estate prices is widespread, it is experienced differently at the level of regions, departments, and cities. Local differentiation is explained by numerous factors. Depending on the available old housing stock, the mobilizable land, the available purchase aids, but also the economic dynamism and the attractiveness of a territory, prices do not evolve in the same way.

In Paris, and more generally in Île-de-France, the prices per square meter are sharply declining. On the contrary, some medium-sized cities, just like major metropolises in the South of France, maintain high price levels or even experience a rise. In the vicinity of the Mediterranean, prices remain high from Antibes to Nice, from Fréjus to Perpignan. Tourism, whose impact is also visible in mountain areas, plays an undeniable role in these municipalities.

From La Rochelle to Lorient, from Nantes to Quimper, the West is not left out. On the Atlantic coast too, people are looking to settle down or buy a second home. When the price hike is strong, around 5 to 6% per year, it means that the market is catching up, where the supply is clearly insufficient considering the development projects and the attractiveness of the territory. This is the case for example in Brest or Nice.

Can real estate prices still drop

To what extent will real estate prices continue to drop in 2024? To be able to keep up with households' disposable income, as was the case until the year 2000, a decrease of more than 35% should take place. Indeed, housing prices have almost doubled compared to household income since 2000.

Such a drop seems inconceivable. However, the decline should continue, especially with access to credit still locked. The tightening of financing conditions penalizes many households, who have to scale down their desires and need a significant rebate on the required amount. This is how the negotiation margins are currently increasing. According to the LPI-IAD Barometer for October 2023, this stands at 7.4% for the entire market, up 67% on the year. We negotiate, we lower prices, and 2024 could see the bubble burst continue.