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Real estate: towards a price drop in 2023?

After a year 2022 that promises to be, once again, historic for the real estate market, many observers expect a slowdown in 2023. If a drop in prices is possible, the lack of offers may well continue, except in certain tense areas. artificially inflate them.

1.1 million real estate transactions in 2022, which would make it the second best year in volume after 2021 when 1.17 million properties were sold. The figures presented on Monday, October 17 by the AVIV group (Best Agents & SeLoger Group) show a real estate market full of energy, with a price increase of 5.6% on average for one year, and despite the accumulation of clouds announced several weeks ago.

War in Ukraine, inflation close to 6%, rising energy costs… There is a lot of bad news. To the point of discouraging borrowers? For Xavier Timbeau, principal director of the French Observatory of Economic Conditions (OFCE), the risks of blockage in the real estate market lie elsewhere. The impact of the economic and energy crisis on the real estate sector will be minimal, compared to the direct effect of the rise in credit rates.

The obligation of the Superior Council for Financial Stability not to exceed 35% of the indebtedness, the new usury rate that is the maximum legal threshold at which a bank can grant a loan, the weight of the debtor’s insurance for more than 50 years or even the spectacular increase in the requested contribution: so many difficulties that could have a lasting impact on the production of loans, necessary for the real estate market. Thus, according to the Observatoire Crédit Logement, the drop in credit production was very rapid with a 32% decrease in August and September compared to 2021.

Towards a drop in prices of the order of 10% to 20%?

However, rising interest rates and borrowing difficulties are here to stay. While the average rate on a 20-year mortgage is 2.30% in mid-October according to the Meilleurtaux brokerage, the Credit Logement CSA Observatory estimates that rates will stabilize at around 2.45% by the end of 2023, after live in a zone of turbulence: In the scenario adopted in October, and taking into account the changes that occurred during the summer, the expected average rate is 1.65% for 2022, to stand at 2.40% at the end of the year. Another 40 points would be needed during the 1st half of 2023 (2.80% at the end of June 2023)to slowly retreat to 2.45% at the end of 2023, a level at which it should stabilize in 2024.

Very often, an increase in rates rhymes with a drop in the real estate purchasing power of borrowers, even if Xavier Timbeau explains that the latter very often find alternative meanings: buy a little smaller or revise your project to convert it into a slightly less expensive property (less light, a little less space, a slightly less beautiful view, no balcony…). However, all of this only works for a while. If buyers find themselves locked out, it will probably have to go through a major price correction, on the order of 10 to 20%, Xavier Timbeau predicts. But not immediately: it takes time for the seller to agree to lower his price. There are always buyers in a hurry, or very wealthy buyers, so it can be misleading for a few quarters.

Disparities according to the markets

However, the economist believes that this reduction should cause concern markets that have grown tremendously in recent years, the image of the center of large cities, where prices have reached very high levels. At the national level, Meilleurs Agents and SeLoger estimate that in the next 12 months the increase in real estate prices, although destined to slow down, should continue in France, with an expected average increase of 3%. With, however, real disparities between the different markets. Thus, Paris, Meilleurs Agents expects a drop of around -3%, when the 10 largest cities in France should see their prices increase by around 1%.

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However, the drop in the number of transactions should illustrate the transformations underway in the real estate market. According to the AVIV group, the number of transactions should fall by 15% in 2023 to below one million sales with 950,000 transactions in the next twelve months. A return to the figures recorded in 2020 and which, according to Xavier Timbeau, is explained by the fact that the owners could finally cancel their sale because they cannot find goods to buy. This may also calm the market down a bit.

However, it is hard to believe that the current seller’s market will become a buyer’s market, with more bids than asks. The market is calming down, but supply remains tight and demand remains strong, says Philippe Buyens, founder and immo expert at CapiFrance. However, the AVIV group points out in its barometer that the stock of homes available today in the French market has fallen by -40% compared to October 2018. And as the saying goes, the rare is expensive.

Therefore, this current housing shortage is artificially inflating prices. And the phenomenon, until now confined to attractive areas, is spreading to medium-sized cities. There is a way of life and work that has changed a lot with teleworking. If prices stabilize in urban centers, they rise in medium-sized cities where demand is strongest, notes Philippe Buyens.

Therefore, the real estate market should not undergo profound transformations in the coming months, according to Philippe Buyens. It is a market that is going to return to normality, which is quite healthy, but 2023 promises to be a good year anyway.

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