“Real Estate Market Update: Purchasing Power Drops as Loan Durations Lengthen”

Less 12 m2 in just 13 months: these are the edifying figures revealed by the Banque de France, which regularly takes the pulse of the real estate market. And according to the latest data dating from last March, a median income household could acquire 80 m2 in December 2021, while in January 2023 he could only hope for 68 m2. A sharp drop that brings purchasing power back to what it was in the years 2012-2023…

About 50% of its cause can be attributed to a market downturn in interest rates, with a real surge due to galloping inflation that central banks are trying to curb by raising their key interest rates. Results for candidates for home ownership, borrowing rates that have tripled over these periods, from just over 1% to just over 3%. A small difference that changes everything over considerable durations, since the main adjustment lever used until now was to extend the duration of loans. Within reason, since banks usually cap loans at 25 years, except in two specific cases: major work delaying entry to the premises in relation to the date of signature of the loan, or purchases on plan.

67.5% of loans exceed 20 years

Crédit Logement, which according to it monopolizes a third of the market, confirms in its latest Observatory, that the duration of loans has never been so long: “The lengthening of the average duration of loans was observed from spring 2022 and had continued until December 2022, to drive it to a level never observed in the past of 248 months. However, the extension in 2022 was not sufficient to offset the consequences of the rise in housing prices or to cushion the consequences of the increase in the required personal contribution rates”.

In February 2023, no less than 67.5% of loans were signed for a period equal to or greater than 20 years, compared to 56% in 2021. It is therefore difficult to go further, especially since interest rates are expected to rise further by then. ‘summer.

However, hope for buyers could come from a trend reversal in the real estate market. As we announced in these columns a few months ago, a decline in prices per square meter is beginning in the country, starting with the Paris region and the major cities. A phenomenon that was slow to take hold, but which could increase over the months; moreover, in 2022, prices rose by an average of 4% in France according to the site Meilleurs agents, which explains 40% of the drop in purchasing power described above.

With fewer potential buyers, prices should therefore fall (with, however, sellers who will certainly withdraw their properties from the market).

Writing

According to the real estate loan broker “Meilleurtaux”, the non-financeable files for main residences in March 2023 represent 45% of files compared to 35% 1 year ago and less than 30% 2 years ago. And it’s not over, since with interest rates rising to 3.50%, these financeable files should fall to around 30%. For second homes, this is already the case, and only 25 to 30% of files actually find a lending organization to follow them.