Paris real estate Q4 2024 : Is the worst behind us ?

Since the beginning of the year, mortgage rates have been falling and relatively stable, hovering below 3.8% on average. Between January 2022 and July 2023, interest rates in France were lower than the average in neighboring countries. However, since January 2024, they have aligned with the rates in neighboring countries, around 4%. The year 2023 saw the largest increase in interest rates in France, almost doubling from 2% to 4%, making borrowing more expensive. This led to a drop in sales volumes of 23% over one year, and around 40% over two years.

Over the last 12 months, prices in Paris have fallen by 8% on average, reaching around €9,350/m². House prices in Paris and the Île-de-France region have fallen by 10% on average. Compared to the historical peak in September 2020, this represents a decrease of 14% in nominal terms, and 28% in constant euros (adjusted for inflation). In the short term, the trend remains towards a decline in sales volumes and stagnation or even a slight decrease in prices. However, recovery forecasts for 2025 give hope that "the worst is behind us".

Real estate loans: A recovery dynamic ?

Credit rates continue to fall, and credit production is showing signs of recovery. In June 2024, monthly production reached 8 to 9 billion euros, and 11 billion in July. For comparison, in 2022, it peaked at 22 billion per month before falling to only 6 billion. This turnaround is influenced by macroeconomic factors such as the war in Ukraine, persistent inflation, political instability, and a major crisis in new real estate, the worst in 25 years. While the real estate market is still far from normal, particularly in Paris, negotiation margins are currently high, around 5% on average.

A demand that is still present

Despite the difficulties, the fundamentals of the real estate market remain solid, as housing is an essential need. Demand therefore remains present. The shortage of new properties, combined with the rental crisis, is encouraging some households to consider buying, which has become more accessible than renting in certain regions.

Is the worst behind us?

According to MeilleursAgents and SeLoger, the market has reached its "low point" and should rebound. Since January 2024, real estate purchasing power has increased, offering an average of 4 m² more. In some regions, prices have stopped falling, and are even starting to rise slightly. The signs of a rebound are therefore credible, especially since economic indicators are generally favorable. However, political and social instability remains a source of uncertainty, which could slow down this recovery.

A recovery expected in 2025

In September 2024, an unusual summer comes to an end for the French real estate market. Before the summer, the situation was difficult with falling prices and volumes, as well as developer bankruptcies. At the start of the school year, optimism seems to be returning, and some experts are predicting a recovery for 2025. This echoes a historical trend of continuous increases in real estate prices, except during major crises. Between 2015 and 2022, French real estate saw its value increase by 30% on average, in particular thanks to historically low interest rates that stimulated the market. But with the surge in inflation, the European Central Bank (ECB) raised its key rates from 0% to 4.5% between July 2022 and September 2023, causing a slowdown in sales and a drop in prices in 2023, described as a "black year" with weak economic growth of 1.1%.

However, with the announcement of rate cuts planned by the FED and the ECB, the climate on the real estate market could improve, initiating a possible recovery in 2025, or at least the beginnings of a recovery.

Crises and stagnation of real estate prices

Real estate has gone through three major crises since the 1980s, each causing price stagnation over a period of about 10 years: the crisis of the 1980s (consequence of the oil shock), that of the 1990s (with the Gulf War and the ".com" bubble), and the subprime crisis of 2007-2008. These crises had significant effects on real estate prices, leading to cycles of decline and then stagnation.

Today, the economic outlook is marked by a high public deficit and worrying public finances, which could lead to unpredictable tax reforms. However, since housing is a primary need, it should remain relatively unaffected, or even supported by public policies. The FNAIM (National Federation of Real Estate) advocates for a more ambitious housing policy, including a relaxation of the conditions for granting real estate loans in order to stimulate demand. It also recommends tax breaks to encourage private investors, whose confidence has plummeted since 2017.

Real estate in Europe: an interesting comparison

The French real estate market cannot be analyzed in isolation. According to the Aviv Housing Report, a comparative study of the real estate markets of the European Union, the dynamics of France's neighboring countries are similar. For example, in Germany and Spain, we also observe a stabilization of prices after a phase of decline. In Italy, prices are still under pressure but tend to stabilize. This general trend is supported by the same macroeconomic factors: inflation, increase in interest rates, and political uncertainties. This shows that the European real estate market, although affected differently depending on the country, shares similar characteristics, in particular a limited supply of new properties, which, as in France, supports prices despite a difficult environment.

Conclusion: towards an improvement in 2025?

Interest rates are expected to continue to fall, while prices could rise again in the next 6 to 12 months. Banks are starting to reopen access to credit, and many buyers are expected to return to the market by Christmas 2024. In some regions, prices are already starting to stabilize or rise slightly. In addition, the shortage of new homes is mechanically contributing to maintaining upward pressure on prices in areas where demand remains strong.

In short, although the real estate market is not yet out of the woods, there are increasing signs of a recovery in 2025. However, the evolution will depend largely on economic and political stability in the coming months.

Written for you by Sylvain Talvan on September 27, 2024

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Sylvain Talvan