Candidates for home ownership can relax a bit as mortgage rates have been decreasing since the beginning of the year. Even though this trend has slowed down in recent weeks, it is expected to continue when the European Central Bank lowers its key rates in June, as it has hinted. The broker Pretto has calculated that the decline in mortgage rates has already increased purchasing power for those looking for a property. The borrowing capacity for someone with a monthly gross salary of 4,000 euros was 192,338 euros at the end of 2023, and had risen to 200,819 euros by the end of March. However, it was at 276,790 at the beginning of 2022, so the gain remains modest. According to Pretto’s estimates, for borrowers to fully regain their purchasing power, property prices would need to fall by over 25%.
However, property prices have only decreased by 3.1% in 2023 in the ten largest cities in France according to MeilleursAgents, and recent studies indicate a stabilization rather than an accelerated decline in prices. Can we anticipate a sustainable recovery in the housing market under these circumstances? There are various factors that explain the level of property prices, including a shortage of supply that is particularly noticeable in some regions. Current property owners are also hesitant to give up the profits they could have expected from selling just a few months ago. They are even less inclined to sell if they have taken out loans in the past decade to make their purchase. Now, loans are more expensive to finance the next purchase.
Real estate professionals, such as agents and brokers, believe that things will gradually improve. However, it seems unrealistic to count on a strong market recovery without a further decrease in prices. Apart from potential buyers, few others objectively benefit from this. Property owners may not necessarily profit from it, nor would agents and developers. Local authorities and the government, who derive revenue from real estate transactions, would also not benefit from a sudden market recovery.
As the European Central Bank is expected to lower key rates in June, the continued decrease in mortgage rates is likely to follow, providing potential homebuyers with increased purchasing power. However, to fully restore the purchasing power of borrowers, property prices would need to decrease by over 25%, according to estimates by Pretto. Despite a modest increase in borrowing capacity, there has only been a small decline in property prices in major French cities, and recent studies suggest a stabilization rather than a significant drop in prices. Real estate professionals are hopeful for a gradual improvement in the market, but it may be unrealistic to expect a strong recovery without further price decreases, as few parties involved would benefit from a sudden market rebound.
