Housing – Tense markets: existing real estate fares better than new-build properties

The deterioration in the international environment, impacted by acute geopolitical tensions, has resulted in significant economic and financial imbalances and triggered a major inflationary shock. Faced with the fragility of slow economic growth worldwide, central banks are continuing to pursue monetary policies geared towards stabilizing interest rates until the trajectory of inflation has been reined in at 2% (by 2025).

In France, the negative impact of lackluster economic growth and a volatile social climate is weighing down on household expectations with potential buyers increasingly frustrated in the realization of their real estate ambitions by high interest rates and the difficulty of obtaining loans. The current wait-and-see attitude is also being reinforced by people’s anticipation of future declines in property prices. If signs of this downturn are now becoming visible – with the exception of certain densely populated and tense geographical markets (Paris, Ile-de-France, Lyon, Bordeaux, etc.) where prices have already seen significant declines – this downward trend is still only in its early stages. Prices, which have risen to high/very high levels, are having a dampening effect on what is already depressed demand no longer buoyed up by attractive credit conditions or generous subsidies.

Government announcements – notably, the shifting of certain municipalities into the ‘strained housing market,’ category, incentives to develop intermediate rental housing, the refocusing of zero-rate loans, the intention to double the production rate of intermediate housing units by 2026, etc. – could give the appearance of a policy designed to revive a crisis-torn housing market. But support for households wanting to renovate their homes (increased budgetary commitments for the ‘MaPrimeRénov’ financial aid program for energy renovation projects, the Eco-PTZ interest-free loan, etc.) now accounts for the lion’s share of public housing subsidies. However, the structural inertia of the real estate market, which is far from being a homogeneous whole, works both ways. There is consequently little prospect of a rebound in the short term, all the more so as the room for housing support measures in public authority budgets is limited by the need to reduce the high level of public debt.

Although the promise of a calmer credit environment in 2024 (stabilization of interest rates prior to a subsequent reduction) and the expectation of declining property prices are encouraging signs, they will have no impact on the likelihood of a continued downturn in activity as long as weaker prices seem insufficient to restore to market demand a degree of purchasing power considered acceptable by French households.

Under these conditions, the outlook for new housing starts in 2024 is expected to remain under the 290,000-unit mark. Despite real motivation on the part of households – people’s desire to buy their own homes, to prepare for retirement, to invest in property, etc. – the continuing slowdown in real estate activity in the old-build property market should result in a total number of transactions of less than 800,000. The fall in prices is expected to deepen and spread to new geographical regions, declining from -3% in 2023 to -6% this year, bringing average prices, in real terms and after accounting for inflation, back to the low point reached during the financial crisis.