Buy Now or Wait?
Volume XX, Issue 48
I get asked this question all the time: Should I buy now or wait?
Yes, it does make sense to wait till there is a down market to buy, no doubt. But in our world, where our money might not be coming from a euro source, then there are other factors to consider, such as the rate of exchange that would influence the answer to that question. Add to that the ability to borrow money and you see, the answer isn’t always that simple.
At the moment in France, the price of property is on a decline. At the same time, interest rates are going up, having doubled in one year and are expected to rise significantly in the coming months. So, again, you see the dilemma?
In the long run, it is always more financially beneficial to buy your primary residence rather than rent. Why pay someone else’s mortgage? However, if you’re taking out a loan, the amortization period changes (the time it takes to pay off the loan) according to market conditions and the economic situation. During the previous cycle, the amortization period in France was particularly low: in January 2022, only four years were needed to amortize the various expenses related to the purchase and thus make the acquisition of one’s principal residence more attractive than renting. Now the world has changed, and buyers must be aware that the commitment they make today by becoming homeowners is stronger than it was a few years ago. In fact, it now takes them an average of eight years to amortize their purchase instead of four. This period will fluctuate according to the evolution of real estate prices (increase if the downward cycle continues, decrease if an upward cycle starts again).
Should you wait and see? Interest rates are expected to rise by at least one point in the next six months. However, while the European Central Bank has raised its rates by one-and-a-half points since July 2022, home loan rates in France have only risen by 0.5 points over the same period. Mid-2023, it should therefore be difficult, except for excellent profiles, to borrow over 20 years below 3.5%. For prospective buyers tempted to postpone their real estate project by even six months, the situation is simple: to compensate for this increase in loan rates, real estate prices would have to fall by 8.7% over the same period, which seems unlikely. As proof, during the last down cycle that France experienced between 2011 and 2015, the market certainly lost 7%… but in four years.
Those who should start now are those who want to secure their purchasing power. For them, it is more interesting to buy now, provided that they plan to buy in the long term. Interest rates are expected to continue to rise over the next six months. Prices will not adjust sufficiently to compensate for this. Waiting any longer may jeopardize the ability to enter the market, unless you make major changes to your project or financing structure.
A word of advice for those who wish to take the plunge: keep in mind that the balance of power between buyers and sellers has clearly shifted in favor of the buyers! You should take advantage of this by not hesitating to negotiate the price of properties that, for the first time in years, are having difficulty finding buyers. Each euro saved on the selling price brings the profitability horizon of the real estate project closer!
For buyers with a less constrained financial situation, other factors may argue in favor of a wait-and-see attitude. Indeed, while the real estate market is at its highest, waiting for an adjustment of prices can allow reducing the amortization period. The risk of borrowing with rates at their highest is less of an issue because homeowners will still have the opportunity to negotiate their current loans in order to take advantage of a possible rate cut in the future, once inflation stabilizes at more normal levels.
In any event, there are many uncertainties in the market today. Until these uncertainties are resolved, they will not only fuel the new downward cycle that the market is slowly entering, but will also make it more difficult to access.
Until a month ago, the argument of a simple seasonal price slowdown could still be heard. Today, there is no longer any room for doubt: prices in France’s ten largest cities have really begun to fall. At the beginning of October, only three of these cities had gone into negative territory. At the beginning of November, there were six. Now there are eight.
While Lille and Marseille remain in the green, with increases of 0.7% and 0.8% respectively over the past 30 days, the Top 10 cities have seen their rates fall by 0.1%. This is the first time this has happened since 2015!! If the decrease remains limited for the moment in Nantes (-0.1%), it is however more marked in Lyon and Nice (-0.3% both), Toulouse (-0.4%) or Montpellier (-0.6%). Bordeaux (-0.9%), Rennes (-1%), and Strasbourg (-1%) see their prices clearly in the red while the capital continues its slow tariff erosion (-0.5%).
After years of euphoria, slightly overshadowed in the last two years by the health crisis and the gradual tightening of credit access conditions, the real estate market is entering a new cycle. The most telling example of this downward contagion of the market is Montpellier. While most of the cities in the Top 10 have seen only a slight increase in prices since January (+0.7% in Toulouse, +2.1% in Strasbourg, +3.1% in Lille, and +3.4% in Nantes), the prefecture of Hérault (+7.1%) has held up well and was the only one to keep up with the particularly high rate of increase in Marseille (+12.3%). However, it has just fallen into the red. This initial warning could be harmless if the lengthening of sales times observed in the city over the past three months (+5 days) did not suggest a trend that is likely to continue.
Another city likely to testify to the new negative direction taken by the market is Bordeaux. The capital of Gironde has long been an agglomeration ahead of its time. For the record, at a time when prices were just starting to rise, it was the city that recorded the fastest increases. Today, however, it is also the one that is experiencing the most marked decline (-2.4% since January).
At the national level, the market is also marking time. Since the report by the Chambre de Notaires, prices have in fact stagnated throughout the country (0%). Only rural areas are still doing well (+0.5% in November) thanks to the continuing strong interest in owning homes, rather than apartments. The rest of the market is being weighed down by apartments, where prices are falling in 58 departments. This current pause in the evolution of prices throughout France follows a gradual slowdown observed over the past seven months. Thus, while in May, prices were still rising by +0.8% in France, they only increased by +0.5% per month in June and July. In August, they were barely up by 0.3% and in September and October, they were at a ceiling of 0.2% and 0.1% respectively.
While this stagnation appears to be the logical continuation of a soft landing phase, it is nevertheless part of a seasonal context, with November and December traditionally among the least active periods for the real estate market. Whether in 2019, 2020 or 2021, the evolution of real estate prices during the fourth quarter always experiences a slowdown compared to that recorded during previous half-years. Thus, last year, the change was +2.5% in Q1, +3.6% in Q2, +1.3% in Q3 against only +0.6% in October and November. In this respect, 2022 is no exception (+1.5% in Q1, +2% in Q2, +1% in Q3 and +0.1% in October and November).
(Source of this report: MeilleursAgents.com)
So, is it a good time to buy!? Yes! Particularly if you are not taking a mortgage, and have ready cash to spend, particularly in US dollars. More property will be coming on the market in January and you’ll be finding the best deals in the larger cities. I predict that the trends will go back to living in the cities once those who have moved outside the cities realize the trade-offs they made from not having immediate access to public transportation—making it necessary to own and operate a car, another big expense that offsets the low cost of property in the countryside. And while the rate of exchange is still favorable…why wait and see?
There’s another good reason to buy now in France which has nothing to do with money: improving your life.
Note: If you love statistics, visit this website.
The Adrian Leeds Group®
Adrian, by Jim Delara
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