Falling prices but not everywhere: a review of French property market

The property market is seeing a major lull, say experts, adding it is too soon to tell if a crash is coming

A view of three model houses and a small display board showing an arrow graph, to suggest property trends
Current property trends in France and Europe are not necessarily pointing to another crash
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Falling prices, difficulty in selling apartments, stark regional differences, and a ‘buyer’s market’: these are the current trends in the property market in France, new analysis suggests. We take a closer look.

Falling prices and fewer sales

The property market is seeing a lull after several years of frenetic activity caused by historically-low interest rates and a post-Covid rush.

From a peak in August 2021 of more than 1.2 million sales over the previous 12 months, this year the same number could drop to less than 950,000. This represents around 20% fewer transactions.

“By the end of 2023, we should see between 900,000 and 950,000 transactions over the course of a year,” Frédéric Violeau, a notaire in Caen and head of national property statistics at the Conseil supérieur du notariat, told Le Monde.

This is largely due to the end of low interest rates. Europe-wide inflation has ended these, partly due to the war in Ukraine.

Mortgage rates have since risen nearly fourfold, from 1% in December 2021 to 3.8% in August 2023.

This has reduced household buying power and has seen the number of loans offered to individuals fall by 45% year-on-year.

A buyer’s market

Interest rates and fewer loan offers mean that sellers no longer have the upper hand.

One seller, named Vincent (name changed), told Le Monde: “When we bought our small three-bedroom in the 10th arrondissement of Paris in 2013, we were in a race to get it. The important thing was that we were 80% happy with it.

"These days, buyers are very fussy about everything. They carry out extra inspections and end up not buying.”

He has now moved to the south of France, after selling his 55-square metre apartment. The flat took a year to sell, and sold for €615,000, considerably below the initial price of €670,000.

Fewer sellers but more savings

Currently only owners who absolutely must sell are thought to be agreeing to a significant price reduction.

However Charles Marinakis, chairman of the estate agency network Century 21, said that prices would need to fall by as much as 20% “if we are to hope for a recovery in transactions by mid-2024”.

This is because interest rate rises have reduced people’s purchasing power by around 20%.

This could be tempered by people’s increased savings. Since Covid household savings rates on average have risen by almost four percentage points higher than pre-pandemic, reports the national statistics bureau Insee (Institut national de la statistique et des études économiques).

“People are using these savings to buy property,” said Yann Jéhanno, CEO of Laforêt Immobilier. “We are seeing that some buyers do not require loans.”

New build market in trouble?

Some industry professionals say that turbulence in the property market could have a negative knock-on effect on new build developments.

This will not be helped by the still-high cost of construction materials.

Mr Violeau, the notaire from Caen, is “worried about a massive freeze in the new-build market.”

He believes that the reservations may have fallen by as much as 30% for new builds in the second quarter of 2023.

“There is a link between the new and existing housing markets. The scarcity of properties available on the new-build market will help to keep prices high on the old-build market.

"But if prices do not fall the market is likely to seize up even more,” he said.

Striking regional differences

“National prices no longer mean much,” said Mr Marinakis at Century 21. “Regionalisation has never been so stark.”

The agency said that prices had dropped by 2.5% on average in the first nine months of 2023 (compared to 2022), and by 4.1% in the third quarter of the year.

But regionalisation means this is not the picture everywhere.

Century 21 said whilst prices fell in Paris and Bordeaux by 5.4% and 13% respectively they rose by 1.3% in Besançon, and by 10% in Marseille.

Higher-quality flats with better insulation and energy ratings are selling better, said Mr Marinakis.

“Right now, the ‘inflated’ layer of prices is coming off in areas where prices have risen very quickly,” he said.

“The real fall will come later, and not before the beginning of 2024.”

Stopping short of a crash?

Some reports suggest that these falls could be a sign of an imminent property crash on a similar scale to that seen during the 2008 economic crisis, although this is still speculation.

There is no consensus on whether a crash is on the horizon.

Echoes of the 2008 crisis?

A report published last month (September) by the Organisation for Economic Co-operation and Development (OECD) showed that most of the world’s major economies “have seen a sharp reduction in the volume of transactions and lending for house purchases”.

This “could foreshadow a further weakening of housing markets”.

It added that in the US, the Eurozone and the United Kingdom, “these declines are comparable, in percentage terms, to those observed at the time of the global financial crisis” of 2008.

Like the current situation the 2008 crisis was characterised by a significant drop in mortgage lending.

In 2008 this was due to the rise in interest rates and the US subprime storm.

Similar difficulties hit the French market.

From an average of 800,000 between 2000 and 2007, the number of transactions fell to less than 600,000 in 2009.

This then led to a short but severe period of falling prices.

Too early to tell?

However, housing economist Bernard Coloos said that while "typically, a property crisis starts with a collapse in the number of transactions, followed by a real adjustment in prices”, it may still be too early to tell if the current situation will deteriorate further.

“It can take 24 months or more as it did during the crisis of the 1990s," said Mr Coloos.

Prices in Europe have dropped considerably but not as much as one might expect, he added.

“Prices are holding up. They have started to fall, the question is how far they will fall.”

The OECD report does suggest that prices are not staying in freefall.

While it did say that “house prices have fallen considerably from their peaks in some G20 countries…and investment in housing has fallen sharply”, it also stated that “signs of stabilisation have begun to appear in recent monthly data”.

This is “supported by structural factors such as strong population growth and a limited stock of homes for sale” which have caused prices “to rise again in a number of countries”, it said.

‘No housing crash’

One expert, Alain Dinin, co-founder and honorary chairman of the Nexity property group, said that this “crisis is not like those of the 1990s and 2008”.

“Back then, it was the financial system that was to blame,” he said.

“Today it is the opposite: the financial system is preventing mistakes and even the act of buying, as financial authorities have criticised the banks for lending too much on property.”

Mr Dinin said that environmental awareness of factors such as the “artificialisation of land” and the carbon impact of house-building is also becoming an issue in the housing market.

He added that political factors, such as “the rise of nationalism around the world”, could also see local authorities reduce the number of new build housing permits granted.

He concluded that “prices for existing properties will fall slightly, but one thing is certain: in this context, there will be no housing crash”.

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