Real estate: despite the rise in interest rates and the drop in purchasing power, no market downturn

Real estate: despite the rise in interest rates and the drop in purchasing power, no market downturn

No reversal but a “changing” real estate market, “which holds its breath”. This is the report drawn up by Meilleurs Agents, a specialist in online property valuation, during its back-to-school press conference on Tuesday. The platform draws up an initial overall positive assessment of the year 2022, while the economic news from the start of the summer, marked in particular by rising interest ratesinflation and geopolitical tensions, foreshadowed a more complicated period for the real estate sector.

The “post-Covid” trends — search for an exterior or an additional bedroom, appeal to homes and for the outskirts of large cities – continue to steer the market, to the detriment of certain metropolises such as Paris and Lyon, “which are already marking time in 2021”, adds Thomas Lefebvre, scientific manager of Meilleurs Agents.

Marseille in good shape

Unlike Paris, other major cities continue to see their prices climb. At the top of the top 10 of the most populated metropolises, we find Marseilles, where prices have risen by an average of 4.1% over the past three months, and 9% in one year! Count 3678 euros per square meter for apartments, and 4518 euros per square meter for houses.

Other good increases: those of Montpellier, with 3.1% price increases over three months and 5.7% over one year (count 3642 euros per square meter for apartments and 4189 euros per m2 for houses), and Strasbourg, where average prices rose by 8.7% in one year. For apartments, the price per square meter is close to 4000 euros (3991 euros).

Interest rates on the rise

In these cities, prices should continue to rise in 2023 according to the forecasts of Meilleurs Agents, which presented this Tuesday a new statistical tool which will make it possible to cross “supply and demand taking into account the purchasing power of buyers”. One indicator is particularly observed: that of the household effort rate, which corresponds to the maximum repayment rate that a household can devote to a mortgage. It should not, according to the recommendations High Council for Financial Stability, exceed 35%. Today it is 28% on average in France.

Thus, taking into account the rise in interest rates which, according to them, should reach “2.75%” (excluding insurance) by the end of the year, and up to “4%” in 2023, in “worst case scenario”, Meilleurs Agents could indicate whether or not demand can follow and whether buyers are able to finance their project.

Paris is expected to continue its decline in 2023

“Even in the most pessimistic scenario, where we would double the current interest rate, the average effort rate would reach 34%, and 30% in the preferred scenario, says Barbara Castillo-Rico, head of economic studies at the platform. Thus, 60% of French households would remain solvent despite the rise in rates and could still borrow at less than 35% in terms of the effort rate, ”she continues. In the most extreme scenario, we would go to just over one in two households (55%).

Still, in this context, “certain segments of the market are already in the ‘red’: the Côte d’Azur, which concentrates part of the purchases of second homes, and certain large cities such as Paris and Lyon. This is where demand will be most affected,” adds Barbara Castillo-Rico.

Thus, the forecasts of Meilleurs Agents report a further rise in prices in Marseille, “by around 4% in one year”. Conversely, Paris, where demand will be more affected, should continue to fall, by more than 3%. The question of going below 10,000 euros per square meter for Paris arises. The average price today stands at 10,172 euros per square meter (-1.2% over one year) for apartments.

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