Real estate: no sharp drop in prices in sight?
With a market real estate down for a few months, credit rates showing no sign of falling and sales faltering, many professionals have deduced that the time has finally come for a significant correction in rates. It is true that after years of low interest rates where all the gains in real estate purchasing power have resulted in price increases in the same proportions, it may seem logical that a sharp drop in solvency leads to a strong price drop. So much so that some specialists now expect a decline in property prices of 10% or even 15%.
An opinion that does not share Alain Tourdjman, director of studies and forecasting of the BPCE group (Banque Populaire Caisse d’Epargne). “The sharp drop scenario is a little too dramatic, he believes. On the real estate market, there is always first an adjustment by volumes and only then by prices. Except that according to this good connoisseur of the market, this situation should continue. The forecasts he establishes for both 2023 and 2024 are limited to an annual decline in prices of around 3% when sales could plummet by 25%.
Inflation plays the shock absorbers
How does he come to this conclusion? First of all, he relies on a “standardization” loan rates, with a return at the end of 2024 to rate levels comparable to those at the start of 2012, i.e. around 4% (excluding fees and insurance). And besides, inflation would noticeably dampen the rise in interest rates. “In the event that the borrower’s average income evolves like the gross disposable income measured by INSEE, the decline in borrowing capacity would be limited to 11% by 2024, he calculates. A significant decline but absorbable by more gradual market developments.”
Under these conditions, the scenario adopted by the BPCE expert is that of a fall in sales of nearly 17% in 2023 then 5% in 2024 for the old building (representing 80% of annual housing sales), i.e. 922,000 transactions in 2023 and 876,000 in 2024, i.e. a total decline of 25% compared to the high point of 2021. As for loans, the volume could drop by 20 to 25% compared to 2022. The fact remains that other observers staunchly argue that the steep decline is around the corner. What is certain is that for the moment, the sellers who absolutely have to sell agree to reductions while the others prefer to wait to avoid these inconveniences. It is only when they are sure that time is working against them because the declines will follow one another that they will agree to sell at a discount even if it is not a forced sale. But for the moment, this is not the situation we are experiencing: both buyers and sellers think that the period is not ideal for the market while estimating that the rise will continue in the medium term.