Property market: it's doing well

Recent developments in the property market had raised fears of a difficult situation for buyers and sellers, as well as for industry professionals. Rising interest rates, the usury rate being adjusted too slowly, uncertain banking policy and waiting related to the political and geopolitical context create an unprecedented situation with potentially significant consequences.

For several reasons, however, you can breathe a sigh of relief whatever your situation: the French property market remains robust, and despite certain factors that could slow buyer appetite, no shadow of a severe recession or collapse looms in the coming months. A closer look at the trends at the end of 2022.

Interest rate rises continue

This is probably the most awaited piece of news: interest rate rises continue. Since the low point observed in October 2021, their value can be estimated to have almost doubled in one year.

Obtaining a loan below the 2% threshold is becoming complicated for a decent application, over 20 years or more. In October 2022, loans were thus granted at average rates of:

• 1.7% over 15 years, versus 0.95% a year ago;
• 1.9% over 20 years, versus 1.1% in October 2021;
• 2.1% over 25 years, versus 1.35% last year.

Borrowing therefore costs more, and many households need to revise their financing – or their ambitions in terms of the size or geographic location of the property to purchase. It should be noted, however, that the inflation of rates in France remains reasonable compared to other countries such as the United States, where the average rate for a loan granted over 30 years (the most common term in the US) exceeds 7%!

Let us hope that the evolution of French rates does not follow the American trend, as this average rate over 30 years was only 3% last year… The study by the Crédit Logement CSA Observatory tells us that experts are banking on an increase in average interest rates that could approach 3% in 2023, before stabilising at a lower level in 2024. To be continued!

The new usury rate provides welcome but insufficient flexibility

As a logical consequence of rising interest rates, the usury rate is following the same path and allows banks to satisfy a greater number of loan applications by moving from 2.57% to 3.05%.

However, it is to be feared that the beneficial effect on the market will be short-lived, given the continued rise in interest rates. A new blockage situation is already looming on the horizon, as banks have taken advantage of the usury rate increase to boost their own rate tables: an average increase of 0.3 points is observed in the interest rates offered at the beginning of October. Many applications should once again hit the impassable barrier of usury.

If it seems fair to hope that the new adjustment at the beginning of the year will once again allow a significant number of applications to be satisfied, it should be emphasised that the blocking of the usury rate simply slows down the completion of transactions, not the market itself.

Property prices are rising, but…

The potential difficulties in financing an acquisition do not seem to affect the dynamism of the property market. Supply still faces strong demand and, as a result, prices continue their ascent: +4.6% since January according to the national barometer prepared by MeilleursAgents and published in October 2022, and +0.3% for September alone.

However, it seems that a reversal of the trend is emerging in large cities, although it is too early to say whether it will be lasting. Paris is thus seeing its price level fall by 0.5 points in one month, and by 0.4 points since the beginning of the year according to the IPI published by MeilleursAgents and Les Echos.
The podium, however, goes to Bordeaux, whose prices fell by 0.9% in one month, followed by Strasbourg and Toulouse with price falls of 0.8% and 0.7% respectively.

Once again, this phenomenon is beneficial to the market but may slow down the completion of transactions, through owners waiting and watching for a possible recovery in prices – which forecasters seem to rule out.

An opportunities market for those with larger means

One thing is certain: property transactions have required increased preparation and resources since the health crisis. Borrower selection remains demanding, which is clearly visible in the facts: broker Finance Conseil tells us that the average deposit, which was €29,405 a year ago, is now €62,176! This can, however, be explained by the usury rate brake having favoured applications with the highest deposit ratio, putting other applications temporarily on hold.

The average loan amount has, for its part, remained stable (at €236,412 in September), but the income required to borrow has risen substantially, by around 40%.
Let us then assume that those with sufficient (substantial?) income have good deals to be done, on a market where competition is less fierce. A good time to buy, in short!

Inflation, beneficial to the property market

Finally, inflation continuing on the vast majority of consumer goods and services makes property a sought-after refuge for savers, even more than before. Rather than suffering the devaluation of savings, it is indeed profitable to place them in a property product whose monthly payments will not change and whose value, over time, must endure despite inflation.

Once again, property shows its strength as a reassuring investment, in the face of inflation and given the geopolitical context that directly impacts other forms of investment. With an unprecedented situation whose consequences and outcome remain a complete unknown, owner-occupiers and investors instinctively turn to bricks and mortar.

2023 should therefore see interest rates rise again, and potentially initiate a genuine reduction in sale prices that remains to be confirmed. Such a scheme would balance acquisition costs and once again maintain strong demand: without doubt, the property market will continue to do well for a long time to come!