Will real estate fall in 2024?

The real estate market in 2023

Looking ahead to 2024 begins with an analysis of 2023. The year's results offer a few perspectives to consider. After the record year of 2021, with its sharp rise in post-covid real estate transactions, we can see that the momentum has been maintained in 2023.

The French real estate market underwent significant changes during 2023. At the end of September 2023, total property sales over the last twelve months reached around 928,000 transactions across France, including the overseas departments, with the exception of Mayotte. This figure represents a notable 18% decrease on the same period in 2022, when 1,138,000 transactions were recorded. This volume of transactions is comparable to that recorded six years earlier, in July 2017, which was 929,000 transactions.

The market for older apartments

In the third quarter of 2023, prices for existing apartments in mainland France fell slightly, down 1.2% on the second quarter of the same year.

This downward trend marks a change from previous quarters, which saw an increase of 0.9% in the third quarter of 2022, followed by 0.3% in the fourth quarter of 2022, then a fall of 0.1% in the first quarter of 2023 and 1.0% in the second quarter of 2023. Over the year as a whole, prices for old apartments have fallen by 2%, a moderate decline that contrasts sharply with the significant increases of previous years, notably by 4.1% in the third quarter of 2022 and by 5.3% in the third quarter of 2021.

This is the first time prices have fallen since 2015. However, it is important to distinguish between regions: in the provinces, prices have remained relatively stable, rising by 0.5% year-on-year, while in Île-de-France, they have fallen by 5.3% over the same period.

Projections for the fourth quarter of 2023 point to a further decline in prices in mainland France, which could reach -3%. Prices are also expected to fall in the provinces.

In the Île-de-France region, annual price declines could reach -6%. By the end of January 2024, forecasts suggest that price declines will continue to accentuate, with a decrease of -3.5% for metropolitan France, -1.1% for the Province and -6.8% for Île-de-France.

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The market for older homes

Prices for existing homes in mainland France also fell by 1% in the third quarter of 2023 compared with the second quarter.

This downward trend follows a similar pattern to that for apartments, with rises in the third quarter of 2022 (+1.7%) and the fourth quarter of 2022 (+0.2%), followed by falls in the first quarter of 2023 (-0.3%) and the second quarter of 2023 (-0.6%). The situation also varies between the provinces, where prices fell by 0.7%, and Île-de-France, where the decline was more marked at -2.6%.

Year-on-year, prices fell by 1.6% in the third quarter of 2023, with a particularly sharp drop in Île-de-France (-5.4%) and a more moderate decline in the provinces (-1%). These figures mark a clear break with the strong increases seen over the previous two years, when prices rose by 8.1% in 2022 and 9.1% in 2021.

Economic conditions influence the real estate market

In 2023, the French real estate market was strongly influenced by economic conditions, marked by an economic slowdown, rising interest rates and a decline in household purchasing power. These factors have led to a significant deterioration in the real estate market in several respects.

Let's take a moment to examine the general context surrounding the French real estate market. A pertinent analysis will provide a better understanding of the mechanisms affecting real estate sales prices.

Interest rates on mortgages

In 2023, the French real estate market was strongly influenced by rising interest rates and credit restrictions. These factors have had a considerable impact on households' ability to access home loans, contributing to a decline in real estate transactions and a fall in prices.

Rising interest rates

‍Interest rates on mortgages have risen significantly, to over 3%, well above the level of previous years when they were around 1%. This rise in rates has made access to credit more difficult for many potential buyers.

Credit restrictions

Banks have become more selective in granting home loans, demanding stricter conditions such as a higher down payment and greater repayment capacity. This increased selectivity has led to a large number of loan refusals, even for applications that seemed solid.

Banks have slightly relaxed lending conditions, indicating a desire to revive real estate lending.

Inflation

According to INSEE: "Over one year, according to the provisional estimate made at the end of the month, consumer prices would rise by 3.1% in January 2024, after +3.7% in December." This fall in inflation is due to a slowdown in energy, food and manufactured goods prices over the year.

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Property price forecasts for 2024

The results for 2023 are in. What can we conclude for 2024? What are the future consequences of all these events?

A predicted drop in real estate sales volumes

An average fall in property prices in France of between 3% and 4% is forecast for this year. This forecast is based on the fact that real estate purchasing power is declining, suggesting that prices will continue to fall. This trend is likely to be seen even in cities such as Lyon and Bordeaux, where, although prices have already fallen significantly, the optimum price differential has not yet been reached.

Will borrowing rates continue to rise?

Since January 2024, a slight reversal of this trend has been observed, with an average reduction in rates of 0.10 points, bringing rates for the strongest applications down to around 4%. This change in interest rates is crucial for buyers, as a higher rate means a higher cost of borrowing. The question remains, however: will this fall in interest rates continue, or is it a short-lived trend?

Energy-efficient renovation

According to a study by notaires, the impact of a fall in selling prices for the worst F and G labels is greater for house sales (around -10%) than for apartment sales (around -5%).

Will real estate prices fall in 2024?

For 2024, it is likely that the decline in property prices will not only continue, but intensify, with an estimated average reduction of around 4%. At the same time, the volume of real estate transactions is expected to continue to decline, potentially down to around 800,000 sales by September 2024.

In addition, the rebuilding of bank margins could lead to an easing of bank lending conditions. However, real estate demand is likely to remain restricted, mainly to buyers who already own their own home.

This, in turn, could lead to an increase in the supply of properties for sale, although this does not appear to be the case for rental properties. If you have a real estate project in mind, we'll be happy to provide expertise and advice.

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