Note on the real estate situation of the Notaries of France, April 2023

Change of era

If the volume of transactions had entered a downward phase around 5,5% since the summer of 2022, it now reached -8,1% over one year at the end of February. The decline suddenly accelerated, reflecting the feelings of notaries on a deeply calm start to the year. At this rate, the volume of transactions could drop below the one million mark at the end of the summer. It is customary to believe that the real estate year is done in the spring. This assertion is very likely to prove to be erroneous in view of the inflationary context and the rise in interest rates which is impacting the real estate market, correlatively to a new home market in the doldrums with no current prospect of recovery. It should also be remembered that, in this context, there is also the compulsory energy renovation of housing, the financing of which may be in question.

Moreover, the downward trend in volumes foreshadowed a fall in prices to come. If it has not yet been transcribed, according to the projections resulting from the preliminary contracts at the end of May 2023 in annual evolution, the prices of existing housing in metropolitan France would undergo a significant change in trend: after the gradual deceleration in the rise in prices observed since September 2022, prices would only increase very slightly at the end of May 2023 (+1,3% over one year). The annual changes recorded on the individual market would then be +2% against +0,3% on the group market, suggesting a decline to come. We can nevertheless note that the evolutions of the price indices over 3 months show a drop of -0,9% at the end of May 2023, both for the individual and for the collective.

More specifically, in the provinces, the increase in prices of existing homes recorded should also experience a gradual deceleration. After recording an annual increase of +6% in the 4th quarter of 2022, prices should only increase by +2,4% over one year to the end of May 2023. The increases should be similar in the individual market (2,3. 2,5%) and on that of the collective (+2022%). In Ile-de-France over one year, from January 2023 to January 1, the prices of existing housing increased by +2,7%. If that of apartments has stabilized, that of houses is still up by +2022%. But the annual variation, which takes into account price increases until August 2022, still masks the fact that prices have fallen since September 4, for 10.410 consecutive months. Leading indicators on pre-contracts confirm that these price adjustments should continue, now in line with the decline in sales volumes. In Paris, the price per m² of old apartments stood at €2023 in January 1,6 (-10.250% in one year). It should fall to €2023/m² in May 2,7, deepening the annual decline to -3,4%. This movement is spreading and we expect a fall in prices per m² of -1,2% in the inner suburbs and -2022% in the outer suburbs from May 2023 to May 7. It has been 2022 years since we had not observed annual declines in apartment prices. In one year and despite the sharp rises during the summer of 0,2, the prices of old houses should stabilize at +XNUMX%.

Beyond the anticipated landing, the real estate market now seems to have entered a new era, with an upward movement in mortgage rates coupled with inflation that central banks are controlling by raising their interest rate. interest, de facto penalizing borrowers. As such, the High Council for Financial Stability (HCSF) could relax its rules on the debt ratio by a maximum of 35% and loan terms that cannot go beyond 25 years, despite the Bank's reluctance France, the end of accommodative monetary policies causing a mechanical rise in rates, the downturn in the real estate market being unrelated to prudential rules.

In this context, it is necessary to take into account the arbitration of expenses for individuals, particularly with regard to housing and acquisition, a fortiori for first-time buyers. As the notaries note, first-time buyers with the lowest incomes are directly affected by this macroeconomic context which penalizes them and have, for the most part, disappeared from the real estate market. We bet that if the fall in prices is catalysed by the effect of a framework more favorable to buyers, the real estate market could find a welcome second wind there, the stone remaining in itself a security against inflation.

The new home market, meanwhile, continues to sink into the crisis, leading to shared concern among all real estate players. The French Building Federation (FFB) even describes the last quarter of 2022 on the new home market in the diffuse sector, with its 38% regression, as "the worst year in the last sixteen years".[1]

The rise in building costs, linked to inflation and particularly that of raw materials, to new environmental standards, to the scarcity of land pushed by the Zero Net Artificialisation (ZAN) fixed for 2050, not to mention the gradual loss of attractiveness of the Pinel system, lead the new home market to an economic impasse.

Credit - Banque de France data Results at the end of February 2023

In February, the CVS flow of new home loans stood at €14,6 billion (€12,2 billion excluding renegotiation). The effective rate in the narrow sense –TESE–, that is to say excluding costs and insurance, stands at 2,36%. The annual growth rate of outstanding home loans was +4,8% in February 2023. The growth rate of consumer loans rose slightly in February, to +4,0% after +3,9% in January.

Trends in old property prices according to “A, B, C zoning”

The end of 2020 marks a breaking point in the evolution of prices by zone

The ABC1 zoning was created in 2003 as part of the so-called “Robien” rental investment scheme. Although it was revised several times until 2014, it is used in particular for eligibility and the scales applicable to aid relating to rental investment and home ownership.

Housing prices are partly the result of a balance between supply and demand. The adequacy or imbalance between supply and demand for housing defines the level of tension of the real estate market in the territory. This tension is measured through territorial dynamics as well as indicators including real estate prices. In practice, the “ABC zoning” allows a “classification of the municipalities of the national territory into geographical zones according to the imbalance between supply and demand for housing” in descending order of tension of the real estate market.

The imbalance is therefore greater in zone Abis, A and B1, while zone C is said to be “non-tense” [2]:

• the Abis and A zones: Paris, a large part of Île-de-France, the Côte d'Azur and the border zone with Switzerland;
• zone B1: other large agglomerations with more than 250.000 inhabitants;
• zone B2: other municipalities with more than 50.000 inhabitants;
• zone C: the rest of the territory.

The notaries of France, in partnership with INSEE, wanted to produce Notaires-INSEE indices of the prices of old housing by area of ​​"real estate tension", called indices by administrative area. The analysis below presents the changes in these series from 2016 (with the resumption of price increases) to 2022, in a period notably marked by the health crisis in 2020.

Since 2016 and until the 3rd quarter of 2020, the annual increases in the prices of existing housing recorded in the various areas of "tension" of the real estate market follow the same hierarchy:

• the strongest increases are recorded within the most “tense” zone Abis;
• the increases are more moderate in zone B1, but still remain higher than those observed in the other territories (A, B2 and C);
• in the Abis and B1 zones, the prices of existing housing are increasing more and more rapidly until the 2nd quarter of 2020, with up to +7,3% over one year in the Abis zone and +6% in the B1 zone;
• zones A, B2 and C show positive annual changes that are similar to each other but to a lesser extent. From the 1st quarter of 2016 to the 2nd quarter of 2020, prices there have gained on average +2% per year against +3% in zone B1 and +5% in zone Abis.

After a 3rd quarter of 2020 marked by the health crisis, this hierarchy observed for several years changed in the 4th quarter of 2020.

While the rise in prices is decelerating significantly in the Abis zone, they continue to progress more and more quickly in the rest of the territory until the 3rd quarter of 2021. In addition, the increases are becoming more significant in less tense territories. Indeed, from the 4th quarter of 2020 to the 4th quarter of 2022, prices increase on average over one year by +2% in zone Abis, by +6% in zone A and around +8% in zones B1, B2 and C.

In the 4th quarter of 2022, with the exception of the Abis zone which recorded stable prices, prices increased less quickly throughout the territory. The increases are nevertheless still slightly higher in the less “tense” zones B2 and C (+6%) than in the more “tense” zones A and B1 (+5%).

[1] Defined in article D 304-1 of the construction and housing code (www.ecologie.gouv.fr/zonage-bc).

[2] Zone map: www.ecologie.gouv.fr/sites/default/files/Carte%20France%20ABC_02_22.pdf