Real estate situation in Île-de-France: in the 2nd quarter of 2024, activity remains sluggish and an annual drop in prices is slowing down

However, if the market remains bearish, the decline in sales is gradually becoming less severe in a very slow but still confirmed movement. The annual decline in prices has slowed down following the stagnation of values ​​in recent months. Pre-contracts are extending these trends for the 3rd quarter, with sales volumes that could still decline compared to last year and an annual decline in prices that is still visible but less sharp.

The crisis is deep and it risks being long-lasting in an uncertain and changing economic and political context. But there are encouraging signals and they give hope that we are approaching the lowest levels before a hoped-for rise in sales volumes.

The wait-and-see attitude continues and activity is at its lowest

The market remained frozen in the 2nd quarter of 2024, driven mainly on the sellers' side by forced transactions (arrival of a child, divorce, professional transfer, inheritance, etc.). Notaries describe buyers who take their time, hesitate and sometimes give up.

Financing conditions have eased, with interest rates[1] announced by the Banque de France at 3,43% in June and 3,39% in July (compared to 3,62% in December 2023, the highest point), and, at the same time, with easing of access to credit[2]. But solvency has improved only slightly.

The slowdown in activity continued and sales volumes of existing homes in the Ile-de-France region fell again in the 2nd quarter of 2024 by 18% compared to the 2nd quarter of 2023. The decline reached 38% compared to the 2nd quarter of 2022.

After being boosted by the consequences of covid and a renewed desire for space and greenery, the housing market is still experiencing the biggest drops in activity, with a 21% drop in sales compared to the 2nd quarter of 2023 and especially 44% compared to the 2nd quarter of 2022. In the Inner Suburbs, in a market that is admittedly very narrow, sales of old houses have practically halved in two years. For apartments in the Paris region in the 2nd quarter of 2024, the drop in sales volumes is 17% in one year and 36% in two years.

Over the last 12 months[3], there have been approximately 106.000 sales of existing homes, a decline of 26% and approximately 37.000 sales for the Ile-de-France region alone. The level of activity is historically low and close to what was observed during the subprime crisis. The current crisis is both broad and lasting and all the more severe as it occurred after a phase of extreme dynamism in the real estate market.

Prices are now less bearish

The contraction in activity has naturally weighed on sales prices. But this downward movement is gradually fading or ceasing (see the graphs at the end of the curve) even though sales volumes continue to decline. This is true for all markets in the Paris region and, according to the preliminary contracts, it should continue through October.

From the 1st to the 2nd quarter of 2024, the annual drop in apartment prices is reduced from 8,4% to 7,4% in the Inner Ring and from 7,0% to 5,5% in the Outer Ring. The trends are identical for houses but a little less pronounced. The annual drop in prices remains at 8,5% as in the previous quarter for houses in the Inner Ring. It falls from 8,2% to 7,8% in the Outer Ring.

According to the preliminary contracts and in October 2024, the annual decrease would be reduced for apartments to 2,0% in the Greater Suburbs and to 4,9% in the Inner Suburbs. For houses it would remain more sustained (-5,0% in the Inner Suburbs and -6,4% in the Greater Suburbs).

In Paris, the price per m2 stands at €9.450 (-6,7% in one year). It should stabilize around €9.500 by October. Since the peak in November 2022 (€10.860 per m2), the cumulative drop in prices has reached 12,6%.

Several hypotheses can be formulated to explain this now slowed down price decline, without knowing how to validate them. Has the drop in rates encouraged owners to maintain their prices in the hope of a recovery in demand? Do they consider the accumulated decline sufficient and unacceptable for them? Is buying and reselling economically impossible, given current prices and rates? Or, does awareness of the tensions on the supply of housing in the Ile-de-France region encourage owners to keep their properties?

What is certain is that the slowdown in the fall in prices prevents a more marked improvement in household solvency.

No improvement in sales to be expected in the short term despite some more encouraging signals

The figures are there: at most, we are seeing a less sustained decline in activity, which has fallen to historically low levels. Preliminary contracts suggest that this downward trend in sales volumes will continue into the third quarter, but at a less severe pace. Beyond that, it is difficult to identify the market dynamics (a persistently constrained market and a prolonged pause, or a rebound?) that will be at work.

Factors for improvement are present with inflation brought back below 2% year-on-year in July 2024, which should further allow for reductions in housing loan rates in the coming months.

This remains a key determinant of solvency and the key driver of recovery in activity, given current price developments.

According to our estimates in October 2024 and compared to August or September 2023, when solvency was most degraded, the monthly payment decreased by 6,7% for apartments (allowing the purchase of 3,9 m2 more) and by 8,6% for houses (allowing the acquisition of 7,7 m2 more).

This improvement in solvency could continue, even if it is to be feared that in the near future we will not find acquisition conditions as favourable as in the period of high activity.

The political context and the orientations of the budgetary policy more specifically devoted to housing, also add additional uncertainties to a market which seems to be under strong constraints for a long time, despite the ever-renewed desire of households to become homeowners.

[1] Annual interest rate, new housing loans for individuals, over one year

[2] According to the publication “Stat Info” by the Banque de France of August 5, 2024, “the use of the banks’ flexibility margin with regard to HCSF standards increased in June (15,6% after 14.9% in May) while remaining significantly lower than the overall envelope of 20%”.

[3] from July 2023 to June 2024

Illustrative image of the article via Depositphotos.com.