Real estate crisis: a summer break for construction materials?

The formation of a government and budgetary guidelines have yet to be defined, with the threat of parliamentary rejection in the background. In this context, the real estate crisis, which nevertheless seems to have reached its low point, continues. Some indicators such as permits, housing sales, housing loans and the confidence of construction contractors are slowly recovering while property prices and interest rates continue to decline; encouraging trends even if the situation for new housing remains very poor. In terms of public works, trends in terms of activity and order books remained fairly positive during the summer. In fact, aggregate production has strengthened significantly while that of ready-mixed concrete, despite a slight improvement in the summer, is still showing a double-digit decline.

Key figures

(May-June-July) 2024 / (May-June-July) 2023

• Aggregates: + 5,2 %
• GEP: -11,9%

(Production in volume, CVS-CJO data)

June-July months rather better

After a month of May particularly marked by bad weather, the materials sector held up better this summer. Aggregate production saw a sharp rebound, of +13,3% in June, before stabilizing in July (+0%), leaving the level of activity 5,2% above that of July 2023 (CVS-CJO data). Over the last three known months, aggregate production therefore shows an increase of +1,3% compared to the previous quarter and stabilizes compared to the three months of May-June-July of 2023. Cumulatively over seven months, it reduced its decline to -3,4% over one year, while over twelve rolling months, the latter reached -5,5%. On the BPE side, deliveries also recorded an increase in June (+4,6% compared to May) before stabilizing in July (+0,2%); but volumes were still down -11,9% year-on-year (CVS-CJO data). Thus, over the last three months (May to July), and especially due to the poor month of May, BPE activity has contracted again, by -4% compared to the previous three months and by -14,1% compared to the same period last year. Since January, BPE deliveries have thus fallen -13,8% year-on-year. July, the last full month before the summer break, undoubtedly benefited from a favorable "working day calendar" effect, without public holidays, which was not the case for August, which is already expected to see particularly slow activity.

The UNICEM materials indicator, available until June, also describes a slight recovery compared to May (+1,3%) but remains down -8,8% compared to June 2023 (CVS-CJO data). Although it stabilized between the second and first quarters (+0,3%), the index still fell by -8,8% over one year. At the end of the first half, the volume of materials activity thus shows a decline of -9,7% over one year, with mortars and dry concretes doing well (-2%) while tiles and bricks plunged by a further -25,4%.

Building: some positive signals

According to the construction company managers surveyed by INSEE, the business climate brightened in August, both in structural work and in finishing work. Thus, the balances of opinion, particularly on the expected activity in new housing, have rebounded even if they still remain well below the long-term average levels; this lesser pessimism, which remains to be confirmed, is accompanied by a slight increase in order books (to 8,8 months in structural work, compared to 8,7 months since April and 6,5 months on average over the long term).

In terms of non-residential construction, the figures for permits and construction starts published by the ministry reflect a slight recovery in trends. At the end of July, and compared to a year ago, authorized premises fell by -2,2% over three months compared to -6,4% over twelve months. As for started areas, the decline over three months is -2% while over twelve months it is -7,4%. Some sectors, such as retail or public and collective services, are more dynamic, unlike offices. In the residential segment, housing starts increased by +4,2% over the last three months compared to the previous quarter, which itself increased by +1,6% (CVS-CJO data). With 272.900 housing units started over twelve months at the end of July, the rolling change over one year remains down by -20,2% while, over the last three months, it is down by -4,3%, proving that the inflection is well underway. But it is mainly collective housing that contributes to "straightening" the trend with an increase of +11,8% in construction starts over the last three rolling months (compared to -25,2% for individual housing), this segment being boosted by sales to institutions and the stock buyback program from developers. As for permits, they also describe this same inflection with a cumulative total over twelve rolling months at -12,1% (i.e. 348.200 authorizations) compared to a quarterly decline of -6,4%. This time, it is rather the segment of grouped individual housing that stands out with a quarterly increase of +8,4% over one year.

According to the latest bulletin from Markemétron, which tracks the activity of individual home builders, the situation is tending to improve. Starting from a very low base, the economic situation in the sector remains, of course, seriously degraded with sales still down -32,6% in rolling annual total (49.300 homes at the end of July). But unusually, the market revived significantly in June and July, helping to amplify the moderation of the quarterly rate of decline in sales (-13,1% at the end of July compared to -40% at the beginning of January). According to the latest data on the marketing of new homes published by the ministry for the second quarter, reservations have also increased, by +3,3% compared to the first quarter (CVS-CJO data) on the private market (which represents 50,3% of the total). However, with 16.199 homes sold, the level remains low and down -11,9% compared to the second quarter of 2023. As for sales, they continue to decline (-4,1% quarterly and -35,7% over one year) reflecting the caution of developers but also generating a scarcity of supply and tension on prices. The latter are indeed struggling to fall: while the average price of new apartments fell by -1% compared to the first quarter (-1,5% over one year), that of houses recovered +0,7% (-2,3% over one year). The upturn in banking supply (with housing loans up +27,5% over one year, for new homes, over three months to the end of August) combined with a drop in interest rates (to 3,62% in September compared to 4,2% in December 2023) and a slight drop in prices undoubtedly explain the better performance of transactions in new residential properties. The INSEE survey, conducted in August among households, also confirms a rebound in the share of households intending to buy a home. However, there is still a long way to go between the "exit from the rut" that seems to be emerging in real estate and the resumption of activity in construction and the materials sector...

A peaceful summer for public works

According to the latest survey conducted by the FNTP, activity held up well this summer with an increase in the volume of work carried out of +2,9% in July compared to June and +4,1% over one year (CVS-CJO), leaving the cumulative figure since January on a trend of +1,9%. At the same time, order intake also accelerated, by +8,7% compared to June, bringing the cumulative figure over seven months to +10,8% over one year. Investments by local authorities fueled by the electoral cycle, as well as major construction sites and projects in metropolitan areas, particularly in urban transport (Tisséo metro in Toulouse, Sytral in Lyon, Inspire tramway in Clermont-Ferrand, etc.), continue to fuel activity even if certain segments such as roads and earthworks seem to be lagging behind, a weakness that weighs on the dynamics of the aggregates market.

Illustrative image of the article via Depositphotos.com.